AEC 301.

AGRICULTURAL MARKETING
&
INTERNATIONAL TRADE (1+1)

Dr. K.CHANDRAN
Dr.N.R.PADMANABAN

DEPARTMENT OF SOCIAL SCIENCES AND LANGUAGES

ANBIL DHARMALINGAM
AGRICULTURAL COLLEGE AND RESEARCH INSTITUTE,
Tiruchirappalli 620 009.

2009

Marketing and Market

The word market comes from the Latin word "marcatus" which means
merchandise or trade or a place where business is conducted. The market, in economic
sense, refers not to a place but to a commodity or commodities, and buyers and sellers are
in free intercourse with one another.
The marketing is defined as the study of entire gamut activities that direct the
flow of goods and services from the primary producer to ultimate consumer.
Agricultural marketing is the study of all the activities, agencies and policies
involved in the procurement farm inputs by the farmer and the movement of agricultural
products from the farmer to the consumers. It includes organization of agricultural raw
materials supply to processing industries, the assessment of demand for farm inputs and
raw materials.

Importance of Marketing
The points of view of producer, middlemen, and consumers are different, but each
is individualistic and concerned with his profit. From the producer point of view it is
important to know whether the prices prevailing in the market enable him to continue to
produce or not, and what he should produce and where and at what time he should sell it.
Large-scale production requires skill to sell it at remunerative price. A consumer looks at
marketing from the point of view of good and the prices at which they are offered.
Middlemen try to increase his profit margin by discharging various marketing functions.
Marketing has greater importance and significance for the society as a whole than for any
of the individual beneficiaries of the marketing process.
1. Any increase in the efficiency of the marketing process, which results in lower
costs of distribution and lower prices to consumers, really brings about an
increase in the National Income.
2.

A reduction in the cost of marketing is a direct ,benefit to society

3. Marketing process brings new varieties, quality and beneficial goods to

consumers. It provides connecting link between production and consumption.
4. Approximately one third of all persons gainfully employed in the country are
engaged in the field of marketing and about one forth of National Income is
earned by marketing profession.
5. Scientific marketing has a stabilizing effect on the price level. If producers
produce what consumers want and consumers have a wide choice of products
there are no frequent ups and downs in price.
6. Marketing is a catalyst for the transmutation of latent resources into actual
resources, of desires into accomplishments and development of responsible
economic leaders and informed economic citizens.
7. Marketing brings to the peasants useful implements, tools and fertilizers etc. and
the benefits of the use of machines and free after sales service, and make them
modem farmers.
8. Scientific marketing also remedies the imbalance in the supply of making
available the surpluses to the deficit areas.
If the functions of marketing are not performed properly the economic system may
get out of balance resulting in piling up of goods with retailers, wholesalers and
manufacturers, which lead to closure of factories and retrenchment of workers. Thus it
plays an important role in economic stability of a country.

Importance of Agricultural Marketing

Agricultural marketing plays an important role not only in stimulating production
and consumption but in accelerating the pace of economic development.

1. Optimization of resource use and output management

Agricultural marketing leads to the optimization of resource use and output
management. An efficient marketing system can contribute to an increase in the
marketable surplus by scaling down the losses arising out of the inefficient processing,
storage and transportation. A well-designed system of marketing can effectively distribute
the available stock of modern inputs and there by sustain a faster rate of growth in the
agricultural sector.
2. Increase in farm income
An efficient system guarantees to the farmers better prices for farm products and
induce them to invest their surpluses in the purchase of modern inputs so that
productivity may increase. This again results in increase in the marketed surplus and
income of the farmers.
3. Widening of markets
A well known marketing system widens market for products by taking them to
remote corners of the country to areas far away from the production point e.g. paddy
produced in Punjab and Haryana are sold in remote tribal areas. Another example is
potato. The widening of the market helps in increasing the demand on a continuous basis
and there by guarantees a higher income to the producer.
4. Growth of agro- based industries
The agricultural marketing system helps in the growth of agro-based industries
and stimulates the over all development process of the economy. Many industries depend
on agriculture for the supply of raw materials e.g. sugar industry, cotton industry, and silk
industry.
5. Price signals
An efficient marketing helps the farmers in planning their production in
accordance with the need of the economy. This work is carried out through the price
signals.

6. Adoption and spread of new technology

The marketing system helps the farmers in the adoption of new scientific and
technical knowledge.
7. Employment
The marketing system provides employment to millions of persons engaged in
various activities such as packaging, transportation, storage and processing.
8. Addition to National income
Marketing activities add to the nation's Gross National Product.
9. Better living
Any plan of economic development that aims at diminishing the poverty of
agricultural population, reducing consumer food prices, earning more foreign exchange
or eliminating economic waste has to pay special attention to the development of an
efficient marketing for food and agricultural products.
10. Creation of Utility
Marketing creates the following four types of utilities of the product :
a. Form Utility: The processing function adds form utility by changing the raw material
into finished products. e.g.
paddy -rice.
Wheat -bread, biscuit, cake.
Milk- ghee, cream, cheese, skimmed milk, butter.
b. Place Utility: The transportation function adds place utility to products by shifting
them to a place of need from the place of plenty. e.g. potatoes in plain, milk at urban
places.
c. Time Utility: The storage function adds time utility to the products by making them
available at the time when they are needed. e.g. tamarind, Rice in off-season.
d. Possession Utility: The marketing functions buying and selling helps in the transfer of
ownership from one person to another in the marketing system.

Components of a market
For a market to exist, certain conditions must be satisfied. These conditions
should be both necessary and sufficient. They may also be termed as the components of a
market.
1. The existence of a good or commodity for transactions (physical existence is,
however, not necessary).
2. The existence of buyers and sellers.
3. Business relationship or intercourse between buyers and sellers; and
4. Demarcation of area such as place, region, country or the whole world.
5. The existence of a perfect competition or uniform price is not necessary.

Classification of markets
Markets may be classified on the basis of dimensions like area, time,
commodities, volume and competition.
1. On the basis of area
On the basis of area from which buyers and sellers usually come for transactions,
markets
a) Local or Village markets: A market in which the buying and selling activities are
confined among the buyers and sellers drawn from the same village or nearby villages.
The village market exists mostly for perishable commodities.
b) Regional Markets: A market in which buyers and sellers for a commodity are drawn
from a longer area than the local markets. Regional markets in India usually exist for
food
c) National Markets: A market in which buyers and sellers are at the national level.
d) World Market: A market in which the buyers and sellers are drawn from the whole
world. These are the biggest markets from the area point of view. These markets exist in
the commodities, which have a worldwide demand and or supply such as coffee,
machinery, gold, silver etc.

The storage facility, transportation preservation and processing techniques used

can enhance the area dimension of market for a commodity. e.g. mushroom local to wider
area by dehydration; milk -pasteurization enhances the area dimension from local to
regional.
2. On the basis of time span
a) Short period Markets: The markets, which are held only for a few hours we called
short period markets. The products dealt with in these markets are of a highly perishable
nature, such as fish, vegetables, milk and flowers. In these markets, the prices of
commodities are
b) Long-period markets: There markets are held for a longer period than the short period
markets. The commodities traded in these markets are less perishable and can be stored
for some time e.g. food grains and oil seeds. The prices are governed both by the supply
and demand forces.
c) Secular-Markets: These are markets of a permanent nature. The commodities traded in
these markets are durable in nature and can be stored for many years. Example is markets
for machinery and manufactured goods.
3. On the basis of commodities
It includes two aspects a) Number of commodities in which transactions take
place and b) Nature of commodities.
a) Number of Commodities: A market may be general or specialized on the basis of the

number of commodities in which transactions are completed.

i) General Markets: A market in which all types of commodities, such as food grains, oil
seeds, fibre crops, gur etc. are bought and sold is known as general markets. These
markets deal in a large number of commodities. e.g. Simmakkal market in Madurai.
ii) Specialized Markets: A market in which transactions take place only is one or two
commodities are known as specialized market. For every group of commodities, separate
markets exist. The examples are food grain markets, vegetable market, wool market and
cotton market.

b) Nature of Commodities

On the basis of the type of goods dealt in markets may be classified into the
following categories.
i) Commodity Markets: A market which deals in goods and raw materials such as wheat,
barley, cotton, fertilizer seed, gold etc. are formed as commodity markets.
ii) Capital Markets: The market in which bonds1 shares and securities are bought and
sold are called capital markets, for example, money market and share market.
4. On the basis of volume of transactions
There are two types of markets on the basis of volume of transactions at a time
a) Whole Sale Markets: A wholesale market is one in which commodities are bought and
sold in large lots or in bulk. Transaction in these markets takes place mainly between
traders.
b) Retail Markets: A retail market is one in which commodities are bought and sold to
the consumers as per their requirements. Transactions in these markets take place
between retailers and consumers. The retailers purchase in wholesale markets and sell in
small lots to the consumers. These markets are very near to the consumers.
5. On the basis of degree of competition
On the basis of competition, markets may be classified into the following
categories.
a) Perfect Markets

A perfect market is one in which the following conditions hold good.

1. There are a large number of buyers and sellers.
2. All the buyers and sellers in the market have perfect knowledge of demand,
supply and prices.
3. Prices at anyone time are uniform over a geographical area, plus or minus the cost
of getting supplies from surplus to deficit areas.
4. The prices are uniform at anyone place, over periods of time, plus or minus the
cost of storage from one period to another.
5. The prices of different forms of a product are uniform plus or minus the cost of
converting the product from one form to another.

b) Imperfect Markets

The markets in which the conditions of perfect competition are lacking are
characterized as imperfect markets. The following situations, each based on the degree of
imperfect, may be identified.
i) Monopoly Market: Monopoly is a market situation in which there is only one seller of
a commodity. He exercises sole control over the quantity or price of the commodity. e.g.
Railways.
ii) Duopoly Market: A duopoly market is one, which has only two sellers of a
commodity, e.g. two retailers in a village.
iii) Oligopoly Market: A market in which there are more than two but still a few sellers
of a commodity is termed as an oligopoly market e.g. different air lines operating in our
country.
iv) Monopolistic Competition: When a large number of sellers deal in heterogeneous and
differentiated form of a commodity, the situation is called monopolistic competition. e.g.
Tea and Coffee by different companies, pump sets, fertilizers etc.

Characteristics of Agricultural and Horticultural Produce

The special characteristics, which the agricultural and horticultural produce
possess, make them differ from the manufactured products marketing.
1. Perishability of produce: Most of the farm produce is perishable in nature, but the
period of perishability varies from few hours (flowers) to a few months (grains).
The extent of perishability of the farm produce may be reduced by the processing
function (chilling of milk) but they cannot be made non-perishable like
manufactured products.
2. Seasonality of production : Traditional varieties are season bound in production
but the high yielding varieties are not that much season bound but even then the
availability of water facilities, temperature, wind, solar radiation to dry the
produce make major part of agricultural production in particular season.

3. Bulkiness of products : the bulky characteristic of most of farm products makes

their transportation and storage difficult and expensive. These increase the price
spread.
4. Variation in quality of produce : Compared to manufacture goods there is large
variation in the quality of agricultural products, which make their grading, and
standardization somewhat difficult.
5. Irregular supply of agricultural products : The supply of agricultural products is
uncertain and irregular because of the dependence of agricultural production on
natural conditions. With the varying supply, the demand remaining almost
constant, the price of agricultural produce fluctuate substantially.
6. Small size of holdings : Farm products are produced throughout the length and
breadth of the country and most of the producers holdings are small in size. This
makes the estimation of supply difficult and creates problem in marketing.
7. Processing : Most of the farm products have to be processed before their
consumption by ultimate consumers. The processing function increases the price
spread of agricultural commodities. The processing firms enjoy the advantage of
monopsony, duopsony or oligopsony in the market. This situation creates
disincentives for the produces and may have an adverse effect on production in
the next year.

Marketable Surplus
The marketable surplus is that quantity of the produce which can be made
available to the non-farm population of the country. The marketable surplus is the
residual left with the farmer after meeting his family consumption, farm requirements,
social and religions payments. This may be expressed as:
MS = P C
where,
MS = Marketable Surplus
P = Total Production and
C = Total requirement of farm family

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Marketed Surplus
Marketed surplus is that quantity of the produce, which the farmer actually sells in
the market, irrespective of his requirements for family consumption, farm requirements,
social and religious payments.

Relations between marketed surplus and marketable surplus

The marketed surplus may be more, less or equal to the marketable surplus. The
relationship between the two terms may be stated as follows:
>
Marketed surplus

< Marketable surplus

=

1. The marketed surplus is more than the marketable surplus when the farmer retains a
smaller quantity of crop than his actual family and farm requirements. This is true
especially of small and marginal farmers whose need for cash is immediate. The situation
of selling more than marketable surplus is termed as distress or forced sale. Such farmers
generally buy the produce from the market in a later period to meet their family / farm
requirements. The quantity of distress sale increases with the fall in the price of the
product. A lower price means that a larger quantity will be sold to meet some fixed cash
requirements.
2. The marketed surplus is less than the marketable surplus when the farmer retains some
of the surplus produce. This situation holds good under following conditions:
a) Large farmers generally sell less than the marketable surplus because of their
better retention capacity. They retain extra produce in the hope that they would
get a higher price in the later period. Sometimes farmers retain the produce even
up to the next production season
b) Farmers may substitute one crop for another crop either for family consumption
purpose or other farm requirements because of the variation in prices. With the
fall in the price of the crop relative to a competing crop, the farmers may consume
more of the first and less of the second crop.

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3. The marketed surplus may be equal to the marketable surplus when the farmer neither
retains more nor less than his requirement. This holds true for perishable commodities
and agricultural raw materials like cotton, jute etc and of the average farmer.
Factors Affecting Marketable Surplus
The marketable surplus differs from region to region and with in the same region,
from crop to crop. It also varies from farm to farm. On a particular farm, the quantity of
marketable surplus depends on the following factors.
i) Size of holding: There is positive relationship between the size of the holding and the
marketable surplus.
ii) Production: The higher the production on a farm, the larger will be the marketable
surplus, and vice versa.
iii) Price of the Commodity: The price of the commodity and the marketable surplus
have a positive as well as a negative relationship, depending upon whether one considers
the short and ling run or the micro and macro levels.
iv) Size of family: The larger the number of members in a family, the smaller the surplus
on the farm.
v) Requirement of Seed and Feed: The higher the requirement for these uses, the smaller
the marketable surplus of the crop.
vi) Nature of Commodity: The marketable surplus of non-food crops is generally higher
than that for food crops. For example, in the case of cotton, jute and rubber, the quantity
retained for family consumption is either negligible or very small part of the total output.
For these crops, a very large proportion of total output is marketable surplus. Even among
food crops, for such commodities like sugarcane, spices and oilseeds which require some
processing before final consumption, the marketable surplus as a proportion of total
output is larger than that for other food crops.
vii) Consumption Habits: The quantity of output retained by the farm family depends on
the consumption habits. For example, in Punjab, rice forms a relatively small proportion
of total cereals consumed by farm-families compared to those in southern or eastern
states. Therefore, out of a given output of paddy/rice. Punjab farmers sell a greater
proportion than that sold by rice eating farmers of other states.

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Approaches to the Study of Marketing

Marketing is a subject, which bristles with wide and varied problems. It includes
the services and functions of different specialized institutions and middlemen. Different
commodities have special marketing problems. Therefore, the results of the study of one
commodity may not be applicable to other commodities. Various approaches have been
suggested and used to study marketing problems. These are functional, institutional
commodity approaches. Some times behavioural system approach and the legal approach,
too, are considered. No single approach, however is satisfactory in all respects, for each
has its merits and demerits. Therefore, a combination of these approaches is essential if
we are to understand all the aspects of the problem related to a commodity in a better and
lucid manner.
i) Functional Approach
Under this approach, the marketing system is studied by considering it as a composite
of specialized functions and business activities. The functional approach takes into
account the jobs which must be performed in the process of the movement of goods. This
approach enables one to evaluate the importance of each marketing function and to
suggest improvements. The advantages of the functional approach in the study of
agricultural marketing problems are:
1. We can make inter-functional comparison of the marketing costs.
2. Inter-agency comparison of the cost of performing a marketing function can be
made.
3. Inter-commodity comparison of cost of performing the various functions can also
be made.
ii) Institutional Approach
The institutional approach to study of marketing problems implies a study of
agencies and institutions, which perform various functions in the marketing process. The
nature and character of various middlemen and other related agencies involved in the
movement of the product are studied. The human element receives the primary emphasis.

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The agencies and institution, which perform various marketing functions, are individuals,
partnership, corporation, cooperatives, or government organizations.
These agencies vary widely in size and ownership. They get their reward in the
form of marketing margins. This approach helps us to find answers to the problems of
'who does what' in the marketing process, whether the margin of the agency is
commensurate with the services rendered, which government regulations are necessary so
that their unlawful activities may be curbed, and how to simplify the procedural system.
iii) Commodity Approach
Under this approach, the commodity is the pivot around which all institutional
and functional details are studied. The problems of marketing differ from commodity to
commodity mainly because of the seasonality of production, the variations in its
handling, storage, processing and the number of middlemen involved in them. For
example potatoes are stored in cold storage, while wheat is stored in godowns. Paddy,
pulses and oil seeds are processed at miller's level.
iv) Behavioural System Approach
This approach refers to the study of behaviour of firms, institutions and
organizations, which exist in the marketing system for different commodities. The
marketing process is continually changing in its organization and functional
combinations. An understanding of the behaviour of the individuals is essential if changes
in the behaviour and functioning of the system are to be predicted.
v) Legal Approach
The legal approach is another dimension of the study of the system of agricultural
marketing. Increasing government intervention through legislation has increased the
importance of this approach. The market regulation programme in many states was
delayed because of the emergence of legal problems. Various rules and regulations have
been introduced to achieve specified goals.

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Marketing Functions
Meaning
Any single activity performed in carrying a product from the point of its
production to the ultimate consumer may be termed as a marketing function. A marketing
function may have any one or combination of three dimensions, viz., time, space and
form. The marketing functions involved in the movement of goods from the producer to
its ultimate consumer vary from commodity to commodity, market to market, the level of
economic development of the country or region, and the final form of the consumption.
Classification
The marketing functions may be classified various ways. Kohls and Uhl have
classified marketing functions as follows:
1. Exchange Functions

: Buying
Selling

2. Physical Functions

: Transportation
Storage and Warehousing
Grading
Processing

3. Facilitative Functions

: Financing
Risk Taking
Dissemination of Market Information

1. Exchange Functions
The process of passing goods into the consumer's hands is called function of
exchange. It includes buying, assembling and selling.
a) Buying and Assembling

Buying is the first step in the process of marketing. Buying involves careful
planning and needs setting up of policies and procedures. The following points are
considered before a particular product is bought.
i) What to buy? (Product)
ii) When to buy? (Time)
iii) How much to buy? (Quantity)

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iv) From whom and where to buy? (Source)

v) On what terms and conditions and prices? (Price)
Assembling starts after the goods have already been purchased. It is a function
separate from buying. Buying involves transfer of ownership of the goods, where as
assembling involves creating and maintaining of stock of goods purchased from different
sources
b) Selling

The function of marketing is to ensure that the right product is made available at
the right place, in the right quantity, at the right price, at the right time and under the right
impressions to the consumer. All these righteousness is made possible by performing the
sales function. Through selling function desires are created hence it is called as creative
function. Selling is also often referred to as distribution function, because distribution
makes goods move from the place of production to the place of consumption. This is
achieved through selling function.
Thus buying, assembling and selling functions are directly concerned with change
in the ownership of goods. They are complementary in nature. For every sale there is a
purchase and for every purchase there must be sale. And, assembling precedes a sale and
assembling follows buying.
Forms of sales of agricultural produce in India are:

i) Under Cover: Under this system buyer or his representative indicates the price he is
prepared to pay by clasping the hand of seller's agent under cover of cloth and pressing or
manipulating the fingers e.g. cattle sale.
ii) By open auction: The broker invites bids for the produce and the produce is sold to
the highest bidder. eg. vegetables by commission agents.
iii) By private agreement
iv) By quoting on samples
v) Dara Sales: The heaps of grain of different quantities are sold at a flat price.
vi) Closed tender system: This system is followed in regulated markets.

16

vii) Moghum sale: The sale is based on the verbal understanding between buyers and
sellers without mentioning the rate as it is understood that buyer will pay the prevailing
rate. eg. Flowers and vegetables by Commission agents.
2. Physical Functions
Physical functions include Transportation, Storage and Warehousing, Grading and
Processing.
a) Transportation

It is a necessary function of marketing because the most of the markets are

geographically separated from the areas of production. It enhances the economic value
through creation of place utility. The important functions of transport are:
i)

It helps in the growth of industries whose products require quick marketing

e.g. vegetables, flowers, milk and fish.

ii)

It increases the demand for goods through widening of market

iii)

It creates place utility. As such transportation bridges the gap between

production and consumption centres.

iv)

By virtue of improvement in the speed of transport it offers time utility to

products.

v)

It helps in stabilization of prices by moving commodities from surplus area to

deficit area.

vi)

Ensures even flow of goods Into the hands of consumers.

vii)

It enables to consumers to enjoy the benefits of many goods not produced

locally.

viii)

Transport intensifies competition, which, in turn, reduces prices. Prices are

also reduced because of the facilities offered by transport for large-scale
production.

Classification of transport
Broadly, the various modes of transport fall under the three categories: Land,
Water and Air. These are further classified on the basis of the vehicles used.

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a) Land Transport
i) Road Transport

Merits : It is cheap, safe and flexible.

Demerits :It has got limited carrying capacity, slow speed, and unstable rates.
ii) Rail Transport

Merits : Most suitable for heavy and bulky commodities. Long distance is quickly
covered, cheap, all weather friendly transport.
Demerits :Inflexibility, non suitable for local transport and lesser accessibility.
b) Water Transport
Merits : Cheapest means of transport, high carrying capacity, creator of international
trade and especially suitable for certain areas (forest products).
Demerits : Low speed, seasonal difficulties, longer journey required, international and
political problems and limited area of operation.
c) Air transport
Merits : Rapid speed, no barriers and boon to perishable commodities.
Demerits :High rate, low carrying capacity, dependence on climatic conditions and high
rate of accidents.
Problems in Transportation of Agricultural Commodities
1. The means of transport used are slow moving.
2. There are more losses/damages in transportation because the use of poor
packaging material, over loading of the produce, and poor handling, especially, of
fruits and vegetables at the time of loading and unloading.
3. The transportation cost per 100 rupee worth of the produce is high because of
perish ability of the produce and its bulkiness.
4. There is lack of co-ordination between different means of transport e.g. railways
and truck companies.
5. Non- availability of wagons at the time of harvest.

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Suggestions for Improvement

Some of the suggestions for effecting improvement in the transport function and
reducing the transport costs are
1. Full utilization of the transportation facility in terms of load. This will reduce the
per quintal cost of transportation.
2. Standardization of transport cost per quintal for different means.
3. Reduction in spoilage, damage, breakage and pilferage by better handling,
packing and the use of proper types of wagons.
4. Removal of barrier in the transport of agricultural produce between states or
regions.
5.

The bulky agricultural produce can be converted into value added products near
production centres so there will be reduction in cost.

6. The speed and capacity of the vehicles used in transportation should be increased.
7. Unification of railway gauge system, extension of roads and vehicles to every
Village.
b) Storage and Warehousing
Storage is an important marketing function, which involves holding and
preserving goods from the time they are produced until they are needed for consumption.
While transportation is the process of transferring goods from one place to another,
storage is a function, which helps in preserving goods in one place until they are needed
at another place. Without storing transportation is Impossible and storing is made
possible by transportation. The storage of agricultural produce/inputs is necessary for the
following reasons:
1. Agricultural products are seasonally produced but are required for consumption
throughout the year.
2. Some goods are produced throughout the year but their demand is only seasonal
e.g. umbrella, fans, woolen clothes, agricultural inputs.
3. The quality of certain products increases by storing e.g. whisky, wine, tamarind,
rice, and pickles.
4. Storage of some farm commodities is necessary for ripening e.g. banana, mango.

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5. Storage protects the quality of perishable and semi-perishable products from

detoriation.
6. It helps in stabilization of price.
7. Storage is necessary for some periods for the performance of other marketing
functions.
Storage structures
Storage Structures

Under ground storage structures

Surface Storage Structures

Bag Storage

Bulk or Loose Storage

Improved Grain Storage Structures

1. Small Scale Storage Structures
a) PAU bin : Galvanized iron structure whose capacity ranges from 1.5 to 15
quintals. It is developed by Punjab Agricultural University, Ludhiana.
b) PUSA bin : Made of mud or bricks with a polythene film embedded within the walls.
It is developed by IARI, New Delhi.
c) Hapur Tekka : Developed by Indian Grain Storage Institute, Hapur. It is a cylindrical
rubberized cloth structure supported by bamboo poles on a metal tube base, and has a
small hole in the bottom through which grains can be removed.
2. For Large Scale Storage
1. CAP storage (Cover and Plinth): the Food Corporation of India has developed
This. It involves construction of brick pillars, to a height of 14" from ground with
groves in which wooden crafts are fixed for stacking of bags of food grains. The
whole unit is covered with a thick polythene sheet.
2. Warehouse: It has been created by FCI, CWC, SWC and Co- operative Marketing
organization.

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Warehousing: Warehouses are scientific storage structures specially constructed for

the protection of quantity and quality of stored products. The important functions of the
ware house are : 1) Scientific storage 2) Financing
3) Price Stabilization 4) Market Intelligence

Types of Warehouses

Based on ownership

On the basis of type

of commodities stored

1) Private Warehouses
2) Public Warehouses
3) Bounded Warehouses
(At sea or air port)

1. General Warehouses
2. Special commodity Warehouses
(for cotton, wool, tobacco and
petroleum products)
3. Refrigerated warehouses the
temperature is maintained below
30 to 50F or even less

Warehousing in India
1. National co-operative Development and Warehousing Board (1956)
2. Central Warehousing Corporation (1957)
3. State Warehousing Corporation
4. Food Corporation of India
5. Co-operative Sector
Objectives of Warehousing corporations:
a. Creation of negotiable paper to provide an instrument for expansion of
credit through commercial banks.
b. Reduce the losses and waste in storage by adopting scientific storage.
c. Introduction of standard grade specification / ware house receipt.
d. Training of personnel to mange and run modern warehouse
e. Providing

assistance

to

government/

governments

sponsored

organisations in their scheme of price support / price control.

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Functions of Warehousing corporation:

1. To acquire and build godowns .
2. To run warehouses for the storage of all commodities
3. To subscribe to the share capital of a state warehousing corporation.
4. To act as an agent for the traders
Utilization of Warehouses by farmers:
The main reasons for the very poor utilization of warehouses by farmers are :
1. Lack of knowledge about available facilities to the farmers.
2. Location disadvantages.
3. Complicated and time-consuming procedure of depositing and withdrawing the
produce from the warehouses.
4. Non-availability of Nationalized banks at the villages to advance loans against
warehouse receipt.
5. Small quantity of surplus produce available with most farmers and the pressing
need for finance.

Risk bearing / taking in Agricultural Marketing

Risk in marketing may be defined as uncertainty in regard to cost, loss, or damage.
The risks associated with the marketing process are of three basic types.
1) Physical Risk
This includes a loss in the quantity and quality of the product during marketing
process. It may be due to fire, flood, earthquake, insects, pests, fungus, excessive
moisture or temperature, careless handling unscientific storage, improper packing, looting
and arson.
2) Price Risk
Prices change not only year to year, but also during month-to-month, day-to-day
or even on the same day.

22

3) Institutional Risk
These include risks arising out of changes in government's budget policy, in tariffs
and tax laws, in the movement restriction, statutory price controls, and the imposition
of levies.

Minimization of risks
Reduction in Physical Loss
a. Use of fire-proof materials in the storage structures to prevent accidents due to
fire;
b. Use of improved storage structures and giving necessary pre-storage treatment to
the product to prevent loss in quality and quantity arising out of excessive
moisture, temperature, attacks by insects and pests, fungus and rodents;
c. Use of better and quicker transportation methods and proper handling during
transit; and
d. Use of proper packaging material.
Transfer of Risks to Insurance Companies
The burden of physical risk may be minimized by shifting it to insurance
companies. There are specialized professional agencies to bear such risks. They collect
some premium and provide full compensation to the party in case of loss due to the
reasons for which the products are insured. In this way, the company insures a number of
farmers against losses.
Minimization of Price Risk
a. Fixation of minimum and maximum prices of commodities by the government
and allowing movements in prices only within the specified range;
b. Marketing arrangement for the dissemination of accurate and scientific price
information to all sections of society over space and time. This should include
information on market demand, acreage under a particular crop, estimates of
market supply and of the import and export of commodities;

23

c. An effective system of advertising may reduce price uncertainly and create a

favourable atmosphere for commodity;
d. Operation of speculation and hedging. The price risk associated with the
commodities for which the facility of forward trading is available may be
transferred to professional speculators through the operation of hedging. A
detailed exposition of speculation and hedging follows.

Processing
The term processing may be defined a deliberate activity which changes the form
of a commodity. It converts farm products into a more usable form. India's food
processing involves only primary processing. It accounts for 80 percent of the value. As
much as 42 percent of food industry is in the organized sector and 33 percent in the small
scale tiny and cottage sectors.

Advantages of processing
1. It changes raw food into edible and palatable form
2. By processing, the value addition to farm products is increased
Sugarcane -Sugar, gur
Wheat -Flour
Mango -Squash, Pulp, Past~ and Pickles
3. Processing function makes it possible for us to store perishable and semiperishable agricultural commodities for later use.
4. It generates employment
5. It widens market Processing serves as adjunct to other marketing functions such as
transportation, storage and merchandising.

Standardization
It means the determination of the standards to be established for different
commodities Standards are fixed on the basis of certain characteristics such as weight,
size, colour appearance, texture, moisture content, amount of foreign matter present etc.

24

Grading
Sorting of the unlike lots of the produce into different lots according to the quality
specifications laid down. Grading follows standardization. It is a sub-function of
standardization.

Advantages of grading
1. Grading before sale enable farmers to get a higher price for their produce.
2. Grading facilitates marketing
3. Grading widens market, without inspection the sale can be effected over phone at
distant places.
4. Grading helps consumers to get standard quality products at fair price shops.
5. Grading contributes to market competition and pricing efficiencies. Grading helps
the farmer

to get finance against pledging in CWC godowns.

to get claims settled by insurance companies and railways.

improve the keeping quality of stored products by removing inferior goods

from the good lot .

facilitates future trading in a commodity

The Agricultural Produce (Grading and Marking} Act 1937, authorizes the
Central Government to frame rules relating to the fixing of grade standards and the
procedure to be adopted to grade agricultural commodities included in the schedule. At
present grade standards are available for 142 commodities. Grading is voluntary for trade
within India. Ti111991, for export grading was compulsory but it is also made voluntary
now.
Grading is permitted in selected commodities at the producers level for few
commodities. Grading facilities exists only in 13 per cent of the country's regulated
markets and that too only for a few selected commodities. (153 as on 1995-96)

25

Central Agmark Laboratory (Nagpur)

12 Regional Laboratories

15 Commodity Specific Laboratories

Market information
Market information may be broadly defined as a communication or reception of
knowledge or intelligence. It includes all the facts, figures, opinions and other
information, which affect the marketing of goods and services. Market information is
useful to all the sections of the society -Farmer, Producer, Middlemen, General Economy,
and government.

Market information is of two types

1) Market intelligence
This includes information relating to such facts as the prices that prevailed in the past
and market arrivals over time. It is historical nature. An analysis of the past helps to
take decision about the future.
2) Market News
This term refers to current information about prices, arrival and changes in the market
conditions. The availability of market news in time and with speed is of utmost value.

Marketing Research
It is defined as gathering, recording and analyzing of all facts about problems
relating to the transfer and sale of goods and services from producer to consumer .

Market Research
It describes research on markets, their size, geographical distribution, and
incomes and so on It is a sub-function of marketing research.

26

Methods of Quality Control

The quality control can be effected at the time of production itself for
manufactured goods, but 1t is not so for agricultural produce because agriculture
production is done in harmony with nature. Farmer has little or no control over nature.
The possible source of quality deterioration during production are pest and
disease attack, weed, seed mixing, non filling of grains due to late flowering, mixture and
off types and other varieties, inclusion of foreign matter. These. Quality-deteriorating
factors can be reduced at the time of harvest and cleaning. And also grading can be done
to get better price for quality produce. But the grading at producers level is not popular in
India. During processing the traders in order to make quick profit may deliberately
include foreign matter like stone, things imitating produce, mixing old produce with
current year harvested produce some of there materials may also cause injury to human
health. The agmark laboratories do the quality control at consumer level. But it is only
voluntary .If the consumers are quality conscious and demand the quality produce the
marketing middlemen cannot but provide the quality produce. Even some private traders
to create a separate market share for their produce enforce quality tests. Since India is
poor country the 'agmark' labeling cannot be made compulsory. Through improvement in
literacy, by conducting quality awareness programmes during exhibitions and
propagating through mass media quality in agricultural produce can be enforced.

Marketing Channel
The chain of intermediaries through whom the various food products pass from
producers to consumers constitute the marketing channel. The length of the channel
varies from commodity to commodity depending upon the quantity to be moved, the form
of consumer demand and degree of regional specialization in production.

27

Rice marketing channel

Producer (Paddy)

Producer

Wholesaler

Procurement centers

Rice miller

Civil supply modern rice mill

Rice

Fair Price Shop

Wholesaler
Retailer
Consumer

Consumer

The cost involved in moving the product from the point of production to the point
of consumption i.e. the cost of performing the various marketing functions and of
operating various agencies is called marketing cost.
The market functionaries involved in moving the produce from the initial point of
production till it reaches the ultimate consumer, charge profit margin / market margin
for the service rendered.

Price Spread
The difference between the price paid by the consumer and the price received by
the producer for an equivalent commodity is known as price spread, some times this is
termed as marketing margin.
Three methods are used in the estimation of price spread

28

1. Lot Method
A specific lot or consignment is selected and chased through the marketing system
until it reaches the ultimate consumer. The cost and margin involved at each stage are
assessed and added to get the price spread.
Limitations of this method:
1. It is difficult to chase the movement of a lot from the producer to the ultimate
consumer.
2. Most of the lots lose their identity because either the product gets processed or lot
gets mixed up with other lots.
3. There is no assurance that the lot selected is representative of the whole product.
This method is appropriate for perishable commodities like vegetables, fruits and
milk.
2. Sum-of-Average Gross Margin Method
The average gross margins of all the intermediaries are added to obtain the total
marketing margin as well as the break up of the consumer's rupee.
N

MT=

i 1

{Si Pi}

Qi

where,
MT

= Total marketing margin

Si

= Sale value of a product for ith intermediary

Pi

= Purchase value paid by the ith intermediary

Qi

= Quantity of the product handled by the ith intermediary

= 1, 2 ..N {number of intermediaries involved in the marketing channel

Limitations of this method:

1. Traders may not allow access to their account books because they may make false
entries to evade sales and income tax.
2. This method necessitates adjustment for the difference between the quantities
purchased and sold because a part of the product is wasted during handling.

29

3. Comparison of Prices at Successive Levels of Marketing

Under this method prices at successive stages of marketing at the producer,
wholesaler and retailer level are compared. The margin of an intermediary is worked
out by deducting the ascertainable costs incurred by that intermediary.
Limitations of this method:
1. Representative and comparable series of prices for the same quality at successive
stages of marketing are not readily available for all the products.
2. Adjustment for loss in the quality of the product at various stages of marketing
due to wastage and spoilage in processing and handling is difficult.
3. The time lag between the performance of various marketing operations is not
properly accounted for.

Marketing efficiency
The term marketing efficiency refers to the effectiveness or competence with
which a market structure performs its designated function. A reduction in marketing cost
without reduction in consumer satisfaction indicates improvement in efficiency. A higher
level of consumer satisfaction at higher marketing cost may mean increased efficiency if
the additional satisfaction derived by consumer out weighs the additional cost incurred on
the marketing process. But a change that reduces cost but also reduces consumer
satisfaction need not indicate increase in marketing efficiency. .Efficiency of marketing
system could be looked at two angles.
1. Technical or physical or operational efficiency
2. Pricing or allocative efficiency.

Technical efficiency
Efficiency is said to have increased when cost is reduced for performing a
function for each unit of output. This can be brought out by reducing physical losses or
through change in technology of the function viz storage, transportation, handling and
processing. A change in the technique may result in the reduction of per unit cost.

30

Pricing efficiency
Pricing efficiency means that the system is able to allocate farm products either
over time, across the space or among the traders, processors and consumers in such a way
that no other allocation would make producers and consumers better off. This is achieved
via pricing of the product at different stages at different places, at different time and
among different users. The above two types of efficiencies are mutually reinforcing in the
long run, one without the other is not enough.
MARKET STRUCTURE
Market structure means those characteristics of the organization of market which
seem to influence strategically the nature of competition and pricing within the market. It
means the organizational characteristics which determine the relation sellers to the buyers
in the market to each other, of the sellers to the buyers and of sellers established in the
market to other actual or potential suppliers of goods including potential new firms which
might center the market

Market structure characteristics

There are four market structure characteristics that are important determinate of the
type of conduct that prevails in all markets.
i.

Number of size of the firms

ii.

Nature of the product (as viewed by the buyers)

iii.

Entry and exit conditions and

iv.

Status of knowledge about costs, prices and market conditions among the
participants.

i. Number and size of the firm

A single firm may conduct itself in such a manner as to maximize its total
profits without concern about other firms trying to undercut the price. But where
few firms exists in a market situation, each firm is striving to increase its share of
the market and may use a number of sales tactics including price cutting to
achieve this result.

31

ii. Nature of the product

Some products are not standardized in the market. e.g. different feed
formulation. What is significant is that the feeds are different in the eyes of the
buyers. As long as farmers think that the feeds are different, they are willing to
pay different prices. When product and / or services are distinguished from one
another in the eyes product differentiation. Thus, the nature of the product
helps to determine the type of behaviour that can be anticipated in market
situations
iii. Entry and exit conditions
Entry and exit conditions refer to the ability of firms to enter or leave the
market. There are definite barriers that might exist eg.: Patent rights, absolute cost
advantages held b existing firms, managerial and technical competence held by
existing firms etc.
iv. Status of knowledge
Market knowledge refers to information held by market participants
(buyers and sellers) that permit them to make informed decisions in the market
environment in which they operate.

Types of market structure

Four types of market structure are observed based on the said characteristics.

Selling Market

Buying Market

Perfect competition

Perfect competition

II

Monopolistic competition

Monoposonistic competition

III

Oligopoly

Oligopsony

IV

Monopoly

Monosony

32

Supply or Seller side of Market

I. Monopoly (no competition)
1. There is only one firm and it determines the amount to be produced
and the prices.
2. There is no close substitute for that product.
3. There is no freedom for new firms to enter, through control of the
market or raw materials; the existing firm can prevent new entrants.
II. Oligopoly (Competition among few)
1. A small number of firms each producing a large enough portion of the
total to affect prices and pricing policies of other firms.
2. The product produced has no close substitute, if there are close
substitutes such as among automobiles through advertising etc., the
firm will attempt to convince consumers that there are differences
among them
3. There is limited entry to the industry by new firms, entry is limited by
capital investment requirements, market organization needs etc.,
4. There may be actual collusion among firms, but each must consider
what effects its policies will have on other firms and vice versa. Price
competition is of no use for oligopoly because if one cuts the price all
others much follow and all are worse off. eg. Fertilizers, farm
machineries, TV etc.,
III. Monopolistic competition (Competition among many)
As the name implies monopolistic competition has characteristics of both
perfect competition and monopoly. The characteristics of monopolistic
competition are:
1. Many small firms each producing a small portion of the total industry
output to have a little influence on price.
2. Output among firms not highly standardized but the output of each is
fairly good substitute for the output of others.

33

3. No collusion among firms, each generally ignores the existence of

other firms.
4. No restrictions for new firm entering the industry. eg. Oil industry etc.,
IV. Perfect competition (Competition among large)
1. Large number of individual sellers that no one seller can influence the
price and from buying point of view, such a large number of buyers
that no one buyer can influence the price.
2. All sellers offer a nearly identical product and any sellers product is a
perfect substitute for any other sellers product.
3. No restrictions on entry or exit of producers and resources to or from
the industry.
4. Perfect knowledge of prices.
5. No effective collusion among buyers or sellers.

Demand or Buyer side of Market

I. Monopsony
Describes the situation where there is only one buyer. e.g.: Coffee
Board.
II. Oligopsony
A few number of buyers dominate the market. e.g.: Natural rubber
and synthetic rubber, tea market etc.
III. Monoposonistic Completion
Presence of a fairly large number of buyers. e.g.: Plastic units,
fiber etc.,

34

Price Determination
1. Price Determination under Perfect Competition
Market price is determined by the equilibrium between demand and supply in a
market period of short run (Short run production period is one in which at least one
factor of production is fixed). The demand and supply equilibrium is shown in Fig. Given
the supply the shifts in demand curve and its intersection with supply curve determine the
equilibrium price. When demand is D1D1 the equilibrium price is P1 at that market
determined price the individual firm is a price taker and equates P1 (which is also the
Marginal revenue and Average Revenue for the firm )with its Marginal Cost . Then the
firm produces q1 quantity of output and sells it at P1 price and earns super normal profit
(Fig )When the demand curve shifts to D2D2 the market equilibrium price is P2 and firm
equates this price to MC and produces q2 quantity. But P2 is less than AC And above
AVC hence it covers AVC but not AFC( AFC= AC-AVC) and hence it is incurring loss at
the short run but will continue production since it covers a part of AFC. As the Demand
further shifts down to D3D3 the new equilibrium price is P3. At that price , P3
=MC=AVC which is just sufficient to cover Average Variable Cost. If the price falls
below P3 the firm will pull down its shutters since the price does not cover AVC.
2. Price Determination under Monopoly
Monopoly is a market form in which a single producer controls the whole supply
of single commodity and which has no substitute. The price determination under
monopoly is depicted in Fig.
A firm under monopoly faces a downward sloping demand curve or average
revenue curve (AR). This means that as the monopolist lowers price demand for his
product and vice versa. Monopolist also equates Marginal Cost with Marginal
Revenue , produces Qm quantity of output and sells at price P. Under monopoly the
firm MR is less than AR (Price). Thus the condition states that MC = MR < AR
(Price). Where as under perfect competition MC = MR = AR.

35

3. Price determination under monopolistic competition

An industry may consist of many firms each making a product which differs only in
detail from that of its rivals . Each firm, since its product is not homogenous with that
of other firms, enjoys some monopoly power. On the other hand, because there is no
real gap in the chain of substitution, there is competition from other firms. What we
really have is a number of small monopolists competing with one another
monopolistic competition.
a) The short period
In the short period existing firms can not increase production by employing
additional fixed factors, nor can new firms enter. Each firm, therefore, is little
monopolist having a down-sloping demand curve for its product and producing
where MC equals MR. Because there are many firms, each firm can set its price
without having to consider the reaction of competitors. The price will be greater than
MR, and supernormal profits are made.
b) The long period
In monopolistic competition the full long period equilibrium position is possible
only when both firms and industry are in equilibrium. Whereas for each firm the
condition of equilibrium (MR = MC) will apply whatever the output, for the industry
we must allow , as with perfect competition, for entry of new firms and for increased
production by existing firms. This is where monopolistic competition differs
essentially from monopoly; with the latter, one firm is the industry.
The increase in supply in the long period will lead to a fall in the price of good,
and the demand curve facing each producer shifts its position downwards to the left,
for more producers are dividing up the total market. At the same time, it is likely that
the demand curve will become more elastic, for all products of the group will tend to
become more similar to that of the most successful. In other words each brand
becomes a better substitute for other brands.

36

This will continue until supernormal profits have disappeared. Each firm will be
earning only normal profits. A comparison of the equilibrium position of the firm in
the short period and long period under monopolistic competition.
A comparison of the equilibrium position of the firm in the short period and the
long period under monopolistic competition is shown in Fig 3.6. In the short period
output is OM, where MR = MC. But the inability to add to fixed factors means that
supernormal profits exist, equal to ABCD. In the long period, the entry of close
substitutes causes the AR curve to fall supernormal profits disappear, and the
equilibrium output is OM1, where MC = MR and AC = AR.

Market integration
Integration shows the relationship of firms in a market. The extent of integration
influences the market conduct of the firms and consequently their marketing efficiency.
Markets differ in the extent of integration and, therefore, there is a variation in their
degree of efficiency. Market integration is a process which refers to the expansion of
firms by consolidating additional marketing functions and activities under a single
management.

Types of market integration

There are three basic kinds of market integration.
1) Horizontal Integration
In this type of integration, some marketing agencies (say, sellers) combine to form
a union to reduce their effective number and the extent of actual competition in the
market. e.g. Primary milk producers cooperative society.
2) Vertical integration
Vertical integration occurs when a firm performs more than one activity in the
sequence of the marketing process. It is linking together of two or more functions in the
marketing process with in a single firm or under a single ownership. For e.g. if a firm
assumes wholesale as well as retailing, it is a vertical integration or rice processor under
taking retailing.

37

3) Conglomeration
A combination of agencies or activities not directly related to each other may
operate under a unified management. Examples of conglomeration are Hindustan Lever
Ltd. {Hima peas and soaps) and Delhi Cloth and General Mills {cloth and vanaspathi).

Problems in Agricultural Marketing

There is an urgent need for tackling the emerging problems of agricultural
marketing more resolutely and efficiently than ever before. The important problems
which have emerged in the recent past pertain to the following areas:

1. Increase in Production Levels and Market Arrivals

With increased market arrivals, and in order to enforce strictly market regulations,
it is necessary that a large number of market yards should be developed in rural areas
with all the necessary marketing facilities. Presently, most of the markets do not have
spacious market yards and the transactions are carried on in congested areas in the centre
of the city and on the roadsides. Recently, some market committees have constructed
spacious market yards; but a majority of market committees do not have them because of
the paucity of funds and the non-availability of land.

2. Price Instability
Agricultural prices are very unstable and fluctuate violently. These prices
fall in the post harvest months and increase later in the year. This situation has
worsened with the increased market arrivals as a result of the emergence of surpluses,
especially of wheat and rice. The increasing instability in price adversely affects the
income of farmers as well as the tempo of increasing production.

3. Market Intelligence
The Directorate of Economics and Statistics, Government of India, as well as the
State Department of Agricultural Marketing have been collecting data on wholesale and
retail prices at various markets and disseminating the information through periodical

38

bulletins issued on the All India Radio and in the form of publications. However, this is
not a satisfactory position because the information provided is state in the sense that, by
the time it reaches the farmers, the market prices have changed. Farmers are not able to
take advantage of the available intelligence because their illiteracy. There is, therefore, an
urgent need for refinement in the available market intelligence, so that announcements of
market information may be made on the expected prices, arrivals, demand and supply.

4. Grading of Agricultural Commodities

Grading ensures that producers receive a price which is commensurate with the
quality of the produce. At the same time, grading protects the consumers against
adulteration. The progress in the adoption of grading by farmers and consumer preference
for graded rather than ungraded produce has been poor; and this situation needs to be
corrected. Scientific quality testing machines and equipment can solve this problem by
rendering a quick and systematic grading service.

5. Transportation
With the increase in production and marketed surplus, farmers and traders are
faced with the problem of adequate and quick means of transportation of the produce at
the village level, inter-market level and inter-state level. Farmers in many areas generally
transport the produce from the farm or village to the market in their bullock carts or
camel carts. These take a lot of time and involve a high cost of transportation by reason
of their slow speed and low carrying capacity.

6. Storage Facilities
The problems of the storage of farm produce has been accentuated by the increase
in the volume of production. Storage is necessary, at the village site to check the tendency
of immediate post harvest sale by the farmers, and at the market level so that the
various marketing functions may be performed and advantage may be taken of any price
rise. In the recent past, warehouses have been constructed by the Food Corporation of
India, Central Warehousing Corporation, State Warehousing Corporation, Co-operative
Marketing Societies and the government. Individuals also have build-up storage space.
The available storage space in these warehouses is less than the requirement. There is,
therefore, a need for the construction of more godowns, specially in rural and hilly /
desert areas.

39

7. Marketing of Agricultural Inputs

The marketing procedures of agricultural inputs have to be improved. This is most
essential in the present context of the use of new technology. The newly-evolved HYV
seeds are more responsive to other inputs and arrangements for their timely availability
are a prerequisite for the success of the programmes of agricultural development.
8. Ancillary Facilities in the Markets
The existing markets lack the ancillary facilities, which include banks, a post
office telegraph office and shopping centres. Also the facilities of sorting, grading and
packaging in the villages or primary markets are not available. These should be increased
to provide full benefits to the farmers.
9. Finance for Market Development
Market development with all the ancillary facilities is highly capital-intensive,
and returns on investment in it accrue slowly over a period of years. For market
development, a special arrangement for financing is necessary.
10. Education of Farmers
It is equally necessary to educate farmers in marketing of agricultural products so
that they may derive necessary benefits of their activities. Without proper education,
benefits cannot reach the farmers fully. This is more so in the present context with the
availability of increased marketed surplus with producer-farmers.
11. General Dissatisfaction of Farmers
The problems listed above generally reflect the inadequacy of the market
infrastructure for handling of the increased volume of production. This inadequacy is
reflected in the general discontentment amongst farmers, which, if not checked, will
thwart the tempo of increasing production.

40

Role of Government in Promoting Agricultural Marketing

In the interest of public welfare, the government intervenes in the marketing system.
The extent of intervention depends on the objectives of the government and the extent of
defects and malpractices prevailing in the system. Government intervention may be direct
or indirect, and it may take anyone or a combination of the' following forms.
1. The framing of rules and regulations for the protection of the interest of some
sections of the population. This may include restriction on activities of traders,
licensing and market regulation.
2. Promotional activities such as storage and warehousing, transportation and
communication facilities, credit facility, grading and standardization, and
encouragement of co-operative marketing.
3. Administration of prices at different levels of marketing -guaranteeing minimum
support prices to producers, providing commodities at fair prices to consumers,
and fixing the rates of commission charged by commission agents.
4. Influencing supply and demand by import, export, internal procurement and
distribution.
Some of the govt. efforts to improve the marketing techniques of agricultural
commodities are:
1. Establishment of Directorate of Marketing and Inspection. The specific functions of
this Directorate are:
a) Market research and commodity survey
b)
c)
d)
e)
f)
g)
h)

Market extension
Statutory regulation of markets and market practices.
Promotion of Grading and Standardization.
Marketing Intelligence cell.
Training of marketing personnel.
Marketing Improvement and Development cell
Publication of Journal

2. State Marketing Departments

3. Regulation of Agricultural Marketing
4. State Agricultural Marketing Boards
5. Council of State Agricultural Marketing Boards (CO SAMB)
6. State Trading Corporation
7. Food Corporation of India
41

8. Buffer stock, Procurement and Distribution.

9. Quality Control of agricultural products
10. Consumer protection
11. Administered prices
a) Minimum support prices

b) Procurement prices

12. Statutory Price Control and Rationing

13. Passing of Acts for improving Agricultural Marketing
14. Promotion of Cooperative Marketing
15. NAFED National Agricultural Co-operative Marketing Federation
MARKETING INSTITUTIONS
Marketing institutions are business organizations which have come up to operate
the marketing machinery. In addition to individuals, corporate, co-operative and
government institutions are operating in the field of agricultural marketing. They
perform one or more of the marketing functions. They assume the role of one or more
marketing agencies, described earlier in this section. Some important institutions in the
field of agricultural marketing are:
(a) Public Sector Institutions
(i) Directorate of Marketing and Inspection (DMI)
(ii) Commission for Agricultural Costs and Prices (CACP)
(iii) Food Corporation of India (FCI)
(iv) Cotton Corporation of India (CCI)
(v) Jute Corporation of India (JCI)
(vi) Specialized Commodity Boards
Rubber Board
Tea Board
Coffee Board
Spices Board
Coconut Board
Oilseeds and Vegetable Oils Board
Tobacco Board
42

 Cardamom Board
Arecanut Board
Coir Board
Silk Board
National Horticulture Board (NHB)
National Dairy Development Board (NDDB)
(vii) Others
Central Warehousing Corporation (CWC)
State Warehousing Corporation (SWC)
State Trading Corporation (STC)
Agricultural and Processed Food Export Development Authority (APEDA)
Export Inspection Council
Marine Products Export Development Authority (MPEDA)
Silk Export Promotion Council (SEPC)
The Cashewnuts Export Promotion Council of India (CEPCI)
Agricultural Produce Market Committees (APMC)
State Agricultural Marketing Boards (SAMB)
Council of State Agricultural Marketing Boards (COSAMB)
State Directorates of Agricultural Marketing
Research Institutions and Agricultural Universities
(b) Cooperative Sector Institutions
(i) National Cooperative Development Corporation (NCDC)
(ii) National Agricultural Cooperative Marketing Federation (NAFED)
(iii) National Cooperative Tobacco Growers Federation (NTGF)
(iv) National Consumers Cooperative Federation (NCCF)
(v)Tribal Cooperative Marketing Federation (TRIFED)
(vi) Special Commodity Cooperative Marketing Organizations (Sugarcane, Cotton, Milk)
(vii) State Cooperative Marketing Federation
(viii) Primary Agricultural Cooperative Marketing Societies
43

Unorganized Markets
These are the markets in which business is conducted without any set rules and
regulations. Traders frame the rules for the conduct of the business and run the market.
These markets suffer from many ills, ranging from unstandardised charges for marketing
functions to imperfections in the determination of prices.

Organized Markets
These are those markets in which business is done in accordance with the rules
and regulations framed by the statutory market organization representing different
sections involved in markets. The marketing costs in such markets are standardized and
practices are regulated.

1. Regulated Markets
The basic philosophy of the establishment of regulated market is elimination of
malpractices in the system and assignment of dominating power to farmers or their
representatives in the functioning of markets. The specific objectives of the regulated
markets are:
1) To prevent the exploitation of farmers by overcoming the handicaps in the
marketing of their products;
2) To make the marketing systems most effective and efficient so that farmers may
get better prices for their products and goods are made available to consumers at
reasonable prices;
3) To provide incentive prices to farmers for a better production programme both in
quantitative and qualitative terms; and
4) To promote an orderly marketing of agricultural produce by improving the
infrastructure facilities.
Some of the important features of the regulated markets are:
Methods of Sale: Either open auction or by the closed tender method is followed.
Weighment of Produce: It is done by licensed weigh-man with standard weights and
platform scale.
Grading of Produce: The produce is sold only after grading.
Market News Service: Arrangements are made for proper and correct dissemination of
market prices through various media such as loud speakers and notice boards.
44

Market Charges: the buyers of agricultural produce pay the market charges
Payment of the Value without deduction.
The buyers should make prompt payments for the produce
Licensing of Market Functionaries
Supervision: the officials of the market committee supervise the day-to-day functioning
of regulated markets i.e.. The secretary, auction clerks and other staff. The administrative
decisions are taken by the nominated/ elected market committee.

2. Cooperative Markets
The efforts of the government to improve the marketing system of agricultural
commodities have been only partially successful. The progress of regulated markets is not
uniform in all areas. So the establishment of co-operative marketing societies is another
step taken to overcome the problems arising out of the present system of marketing
agricultural produce.

Meaning
A cooperative sales association is a voluntary business organization established by
its member patrons to market farm products collectively for their direct benefit. It is
governed by democratic principles, and savings are apportioned among members on the
basis of their patronage.

Functions
The main functions of co-operative marketing societies are :
1) To market the produce of the members of the society at fair prices;
2) To safeguard the members from excessive marketing costs and malpractices.
3) To make credit facilities available to the members against the security of the
produce brought for sale.
4) To make arrangements for the scientific storage of the members produce. To
provide the facilities of grading and market information which may help them to
get a good price for their produce;

45

5) To introduce the system of pooling so as to acquire a better bargaining power than

the individual members having a small quantity of produce for marketing
purposes.
6) To arrange for the export of the produce of the members so that they may get
better returns
7) To act as an agent of the government for the procurement of food grains and for
the implementation of the price support policies.
8) To make arrangement for the transport of the produce of the members from the
villages to the market on collective basis and bring out a reduction in the cost of
transportation. .
9) To arrange for the supply of inputs required by the farmers such as improved
seeds, fertilizers, insecticides and pesticides.

Types of Cooperative Marketing Societies

On the basis of the commodities dealt in by them, the cooperative marketing societies
may be grouped as
i)
Single commodity marketing societies e.g. Sugar cane Cooperative Marketing
Society, Cotton Cooperative Marketing Society, Milk Cooperative Marketing
Society
ii)
Multi -commodity cooperative marketing societies.
iii)
Multi-purpose, Multi- commodity cooperative marketing societies.
Structure
The cooperative marketing societies have both two tier and three tier structures.

Two tier structure

Three-tier structure

State level marketing federation

State level marketing Federation

(Taluk Level) Primary co-operative

marketing societies

District marketing societies

(Taluk Level) Primary Cooperative

marketing societies.

46

Three-tier structure is found in Assam Bihar, Kerala, Madhya Pradesh, Karnataka,

Orissa, Rajasthan and West Bengal. In all other states two-tier structure is functioning.

Reasons for Slow Progress of Co-operative Marketing Societies

The main reasons for slow progress are
i)

ii)
iii)
iv)

v)

vi)

Farmers do not make use of cooperative societies since they are situated at
distant Taluk levels, farmers need cash after harvest to meet personal
obligations and also they are indebted to local moneylenders.
In some cases rivalries among farmer members result in indecision, which
retards the progress of societies.
Societies do not provide facilities of food and shelter to farmers when they
visit the market for the sale of the produce.
Managers of societies do not offer business advice to farmers, and they often
get linked with local traders and become impersonal to the needs of the
majority of small and marginal farmers.
Lack of funds with societies to meet the credit needs of the farmers against
pledging of the produce brought for sale. They also do not have storage
facilities.
They are not capable of carrying on their business in competition with traders
and commission agents because of absence of adequate business expertise
among their employees.

Suggestions for strengthening of Cooperative Marketing Societies

i)
ii)
iii)

iv)

The area of operation of societies should be large enough so that they may
have sufficient business and become viable.
Storage facilities, transport facilities, accommodation and drinking facilities
should be strengthened in the societies.
Cooperative feeling among members should be inculcated by proper
education and adequate representation should be given to small and marginal
farmers in their organizational set up.
In selection of officials of cooperative marketing societies weightage should
be given to business experience and qualification. After selection proper
training should be given.

47

COMMODITY BOARDS
The commodity Boards are essentially the producer controlled organizations with
government support and authority over a broad range of functions starting with
production, processing and marketing of the crops. The commodity boards function under
the purview of Ministry of Commerce, Government of India. The state governments have
little control over these boards. These commodity boards are mainly confined to
plantation and commercial crops in India. The commodity boards also promote both
internal and external trade of the commodity. Each board deals with a specific commodity
or group of commodities. The important commodity boards established for the specific
commodity or group of commodities in Indian along with their role are discussed below.
(a) Tea Board: Tea board is the premier organization for looking after the growth
and development of Indian Tea Industry. It is a statutory organisation of the Union
Government established under the Tea Act of 1953. The board functions under the
direction of the commerce ministry of the Union Government. Tea Board was not very
active in the earlier decades as the main emphasis was on re-plantation programmes.
Thereafter, the board started giving emphasis to increase the domestic production and
exports. Tea Board advances loans and subsidies for extension, planting, re-planting and
refilling besides exploring the possibilities in non-traditional areas and assisting small
growers. The Boards also advances loans to manufactures. The Boards deals with export
promotion, market intelligence and participation in fairs and exhibitions.
(b) Coffee Board: The Coffee Markets expansion Ordinance, 1940 set-up the
Indian Coffee Market Expansion Board on December 21, 1940. The functions assigned to
the Coffee Board are:
(i)
Promotion of sale and consumption in India and elsewhere of Indian coffee
(ii)
Promotion of agricultural and technological research in the interest of the
coffee industry.
(iii)
Assistance to the coffee estates for their development
(iv)
Securing better working conditions and the provision and improvement of
amenities and incentives for workers
(c) Rubber Board: The Rubber Board is a statutory body constituted under the
Rubber Board Act, 1947 by the Ministry of Commerce, Government of India. The main
functions of this board are to conduct research and training programmes in production
and marketing of rubber, extension services and to plan for the welfare of the plantation
workers.

48

(d) Tobacco Board: Tobacco Board was established on 1st January, 1976 under the
Tobacco Board Act, 1975 by the Government of India. The main functions of the Tobacco
Board are regulation of production and marketing of functions tobacco, ensuring
remunerative prices to growers by purchasing tobacco from the growers, promoting the
grading by growers and recommending minimum prices to the government, for export of
Virginia tobacco, set up of auction platforms and conduct of scientific research related to
tobacco.
(e) Spices Board: The Spices Board was established by the Ministry of Commerce,
Government of India in 1987 under the Spices Board Act, 1986 at Cochin. The main
objectives of establishment of Spices Board are to improve the production and quality of
spices and promote export of different spices to earn foreign exchange. For achieving
these objectives, the Spices Board is providing package of services oriented to different
commodities and areas according to potential/scope of increase in earnings and exports.
(f) Cardamom Board: The Cardamom, the queen of spices, is grown predominantly
in the ever green forests of western ghats of Kerala, Karnataka and Tamil Nadu. It is an
important plantation crop in the domestic as well as in external trade of the country. The
Cardamom Board was established in the year 1966 under the Ministry of Commerce,
Government of India to develop various promotional activities such as extension of
plantations, improvement in the quality of cardamom and increasing the productivity of
cardamom estates.

49

STATE AGRICULTURAL MARKETING BOARDS

They were established to supervise and provide guidance to market committees.
The main functions of the board are
1) To carry out the training of officers and staff, create facilities for grading and
standardization, construct market roads and approach roads to the markets,
construct market yard and sub- yards, establish and maintain the Board office and
others as specified;
2) To tender advice to the government on the functioning of market committees and
on improvement in agricultural marketing as and when referred to;
3) To frame byelaws, help in the functioning of market committees and supervise
their operations;
4) To look after the regulation of markets;
5) To bring about an effective level of coordination in the functioning of regulated
markets at the state level; and
6) To involve in publicity and propaganda activities
COUNCIL OF STATE AGRICULTURAL MARKETING BOARDS (COSAMB)
The COSAMB, an apex body of the State Marketing Boards was established in
February 1988. The need for such a body was felt to co-ordinate the activities of State
Marketing Boards, especially those connected with credit mobilization, central assistance
for market development and some common problems. Under COSAMB, the state
agricultural boards have augmented their activities in achieving the objectives.
STATE DEPARTMENT OF AGRICULTURAL MARKETING (Directorate of
Agricultural Marketing and Agri-business)
Objectives:

To survey the markets in the state and to prepare a programme for their regulation.

To have a administrative control over the market committees.

To gather market intelligence and grading agricultural commodities under

AGMARK

Market regulation

STATE TRADING CORPORATION (STC)

50

The State Trading Corporation of India was set up to help the government in
trading operations. One of the responsibilities of the government is to ensure the supply
of essential commodities to the people. This may require direct intervention on its part in
trading of agricultural commodities.

Objectives:

To make available supplies of essential commodities to consumers at reasonable

prices on regular basis.

To ensure a fair price to the farmers so that there may be an adequate incentive to
increase production.

To minimize violent price fluctuations occurring as a result of seasonal variations

in supply and demand.

To arrange for the supply of such inputs as fertilizers and insecticides so that the
tempo of increased production is maintained.

To undertake the procurement and maintenance of buffer stock, and their

distribution, whenever and wherever necessary.

To arrange for storage, transportation, packaging and processing.

To conduct surveys and provide required statistics to the government so that it

may improve the conditions of the farmers.

To check hoarding, black marketing and profiteering.

TAMIL NADU CO-OPERATIVE MARKETING FEDERATION (TANFED)

Objectives:

To coordinate and promote the marketing and trading activities of its affiliated
cooperative institution

To make arrangements for the supply of agricultural inputs required by member

institutions

To promote interstate trade of agricultural and other commodities

To act as an agent of the government for the purchase, sale, storage and
distribution of agricultural products and inputs.

51

NATIONAL AGRICULTURAL CO-OPERATIVE MARKETING

FEDERATION (NAFED)
At the national level, The National Agricultural Co-operative Marketing
Federation (NAFED) was established in October 1958. The State Level Marketing
Federation and National Co-operative Development Corporation are its members. The
head office of NAFED is at Delhi and its branch offices are located at Mumbai,
Calcutta and Chennai. NAFED's area of operation extends to the whole country. It has
established branches in all the major port towns and capital cities in the country.

Activities:

Internal trade.

Foreign trade -Export and Import of Agricultural commodities.

Price Support operation.

Production and Marketing of agricultural inputs.

Promotional activities.

Developing Co-operative marketing of Tribal produce.

Setting of scientific storage system.

Processing of Fruits and Vegetables.

PRIVATE MARKETING AGENCIES

1. Merchant middlemen: They are those individuals who take title of the goods
they handle. They buy and sell on their own and gain or lose depending on the difference
in the sale and purchase prices. Merchant middlemen are of following types:
(a) Wholesalers buy and sell food grains in large quantities. They may buy directly from
farmers or from other wholesalers. They sell food grains either in the same market or in
other markets. They sell to retailers, other wholesalers and processors. They do not sell
significant quantities to ultimate consumers. They own godown for the storage of the
produce.
(b) Retailers buy goods from wholesalers and sell them to consumers in small quantity.
They are producer's personal representatives to consumers. Retailers are closest to
consumers in the marketing channel.
52

(c) Itinerant traders are petty merchants .who move from village to village and directly
purchase the produce from the cultivators. They transport it to the nearby primary or
secondary market and sell it there.
(d) Village merchants have their small establishments in villages. They purchase the
produce of those farmers who have either taken finance from them or those who are not
able to go to the market. They often visit nearby markets and keep in touch with the
prevailing prices. They either sell the collected produce in the nearby market or retain it
for sale at a later date in the village itself.

2. Agent Middlemen: They act as representative of their clients. They do not take
title of the produce, and therefore do not own it. They merely negotiate the purchase
and/or sale. They sell services to their principals and not the goods or commodities. They
receive income in the form of commission or brokerage. They serve as buyers or sellers
in the effective bargaining. Agent middlemen are of two types, commission agents and
brokers.
(a) Commission Agent normally takes over the physical handling of the produce,
arranges for its sale, collects the prices from the buyer, deducts his expenses to the seller.
All these facilities are extended to buyer firm as well if asked for .
(b) Brokers render personal services to their clients in the market but unlike the
commission agents, they do not have physical control of the product. The main function
of a broker is to bring together buyer and sellers on the same platform for negotiations.
Their charge is called brokerage. They may claim brokerage from the buyer and seller or
both, depending upon the market situation and the service rendered. They have no
establishments in the market. They have complete knowledge of the market -of quantity
available and prevailing prices.

3. Speculative Middlemen: They take title to the product with a view to make a
profit on it. They are not regular buyer or sellers of produce. They specialize in risk
taking. They buy at lower prices when arrivals are substantial and sell in the off-season
when prices are high. They do the minimum handling of the goods. They make a profit
from the short run as well as long run price fluctuations.

53

4. Processors: They carry on their business either on their own or on custom basis.
.Some processors employ agents to buy for them in the producing areas, store the produce
and process it throughout the year on continuous basis. They also engage in advertising
activity to create a demand for the processed products.

5. Facilitative Middlemen: They Some middlemen do not buy and sell directly but
assist in the marketing process. Marketing can take place even if they are not active. But
the efficiency of marketing systems increases when they are engaged in business, these
middlemen receive their income in the form of fees from those who use their services.
The important facilitative middlemen are labourers, weigh men, graders, transport
agency, communication agency and advertising agency.

Stabilization of Agricultural Prices

In an agricultural country like India, the prices of agricultural commodities,
especially of food grains hold a key position in the price structure of economy. Any
distortion in agricultural prices leads to a distortion in the whole structure. Prices may
rise faster at times and fall rapidly at some other times, due to temporary imbalance of
supply and demand. Both sharp rise and precipitous fall in agricultural prices have
dangerous potentialities.
Excessive fall in agricultural prices is dangerous for the
following reasons
a) It leads to fall in the incomes of the farmers.
b) Besides distress sale, the farmers will lose incentive to increase production. Thus
there will be a fall in the supply of agricultural products.
c) A fall in the prices of agricultural products will reduce the purchasing power in
the hands of the rural people. This will lead to a fall in the demand for industrial
products.
The prices should not be allowed to fall below economic levels to maintain farmer's
incentive to invest in the improvement of his farm income, and thereby sustain the
basisof progressive agriculture. Excessive rise in agricultural prices is equally dangerous
for the following reasons
a) A steep rise in the food prices increase the cost of living of the people. Consumer
section of the population are hit hard, as their incomes do not increase
correspondingly to offset the increase in prices.

54

b) Once the prices of agricultural products rise, they are likely to cause an
inflationary spiral in the economy.
c) Rising agricultural prices are not favourable even from the point of view of the
majority of the farmers. The majority of small farmers sell their small produce
immediately after harvest when prices are comparatively low. They have to pay
higher prices when they have to buy in the market during off-season.
Thus both sharp falling agricultural prices and inflationary rise in prices are
dangerous to health and growth of the economy. The harmful effects of instability of food
prices indicate the undoubted need for stabilization of agricultural prices. Rigid price
control of price structure is neither feasible nor desirable. So long as prices move
gradually allowing for costs and incomes to get adjusted, there is really not much to take
exception to such price fluctuations.

Measures for Stabilization

Two principle measures can be adopted to achieve stabilization in agricultural prices.
A. Full Price Control
Rationing is a measure for controlling the demand of consumers and keeping the
rise in demand under check by allotting a limited quantity per capita per time period.
Rationing can be of two types statutory rationing and modified rationing. When whole
of the population in the command area is covered, it is called the statutory rationing. If
only a selected section of the population is covered under the rationing system, it is called
modified rationing.
Full price control in the sense of rationing and procurement does not seem
desirable in the present circumstances.
1. A complete rationing will involve a large increase in government's commitment
for maintaining supplies to the rationed population.
2. Rigid system of procurement if introduced as a regular feature in developing
economy may have adverse effect on production as well as on marketed surplus.
3. It would encourage black market with all its attendant evils.
4. The system is likely to prove very costly also.
5. People do not take kindly to price controls, rationing and procurement.
6. The policy of full control is bound to fail because by and large, we do
not have an efficient administrative machinery for its proper enforcement.

55

B. Other Alternative Measures

1. Buffer stock operation
The term buffer stock of foodgrains refers to the stock of foodgrains maintained by
the government to be used as a buffer to cushion the shocks of fluctuating supply and
price, to meet the emergency needs and to meet the situations arising out of serious
unexpected shortages resulting from transport bottlenecks, natural calamities like flood,
famine, earthquakes and from the influx of refugees.
The main advantages of maintaining a buffer stock are:
(i)
It helps in the stabilization of prices by counteraction the effects of the
activities of speculators and hoarders.
(ii)
It safeguards the producers against low prices, specially during the surplusproduction years.
(iii)
It imparts stability to the countrys food economy.
2. Fixation of prices (Administered prices)
Another method of intervention in the market mechanism has been the announcement
of different administered prices viz., minimum support prices, statutory minimum prices,
procurement prices and issue prices. These prices are announced for different agricultural
crops by the Government of India on the recommendations of Commission for
Agricultural Costs and Prices (CACP). This Commission was originally set up in January,
1965 in the name of the Agricultural Prices Commission (APC).
While recommending the price, the Commission considers the following aspects:
(i)
The need for incentives to farmers for the adoption of improved technology
and maximization of production:
(ii)
The need for ensuring a rational utilization of land and other production
resources.
(iii)
The likely effect of the price policy on the rest of the economy, particularly on
the cost of living of masses and industrial cost structure.
The Commission recommends two sets of prices, minimum support prices and
procurement prices.
a) Minimum Support Price

This is the price fixed by the government to protect the farmers against excessive fall
in price during bumper production years. These prices. give a sort of price guarantee to
the farmers which means that a price not lower than the announced minimum price will
be paid to the farmers when they bring their produce for sale to the market. In case the
market price for the commodity falls below the announced minimum price due to bumper
56

production and glut in the market, government purchases the entire quantity offered for
sale by the farmers at the announced minimum support price. Minimum support price has
been assigned a statutory status in case of sugar cane and as such the announced price is
termed as statutory minimum price. There is statutory binding on sugar factories to pay
the minimum announced price and all those transactions or purchase at a price lower than
this are taken as illegal.
The minimum support prices for different agricultural crops viz. , food grains, oil
seeds, fibre crops, sugar cane and tobacco are announced by the Govt. of India before the
start of the sowing season of the crop. This makes it possible for the farmer to have an
idea about the extent of price insurance cover provided by the government for the crop.
b) Procurement Prices

Procurement price of a commodity refers to the price at which the government

procures the commodity from producers / manufacturers for maintaining the buffer stock
or the public distribution system. These prices are announced by the Government of India
on the recommendations of CACP before the start of harvest season of the crop.
Procurement prices are fixed generally at a level, which is somewhat higher than the level
of minimum support prices but lower than the prevailing market prices. Since
procurement prices are lower in relation to the actual market prices, the farmers and
traders are not willing to sell their stocks voluntarily to government. In such
circumstances the Government procures food grains at announced procurement prices
either by imposing a levy on producer, levy on Traders and Millers and through
monopoly procurement policy. Beginning with the Kharif crops of 1991-92, the system of
announcement of procurement prices has been abolished and only minimum support
prices for all food grains crops is operative.
3. Public Distribution System (PDS)
The distribution of foodgrains to the vulnerable sections of society at fair prices
during periods of scarcity and rising prices is the ultimate aim of the policy of the
procurement and storage of foodgrains by the government.
The public distribution system has been operative since 1943. However, during
the last two decades it has expanded considerably. The public distribution is concerned
with distribution of food grains to consumers through a vast network of fair price shops at
issue price fixed by the government periodically taking into account the changes in
procurement prices and cost of distribution. These prices are kept below the economic
cost to keep them within reach of vulnerable sections of the society. The difference
57

between the issue price and economic price is borne by government by way of food
subsidy. Seven essential commodities are supplied by Central Government to State
Governments and Union Territories for distribution through the public distribution system
to the consumers. These are wheat, rice, sugar, edible oils, soft coke, controlled cloth and
kerosene.
The functioning of the public distribution system has been criticized on many
grounds. Some of these are:
i)
The number of fair price shops are inadequate in the sense that consumers
have to travel long distances to get their supply and have to wait for long
hours;
ii)
The supply of foodgrains through fair price shops is inadequate;
iii)
The quality of foodgrains supplied through fair prices shops is inferior;

Concept of Parity Price

Parity price is the price that purchases for the seller of a unit of an article, as
much of other things and services as he could purchase with the same unit in a given base
period. The parity prices seek to stabilize inter-relations between different agricultural
products as well as between agricultural and non-agricultural products. The principle of
parity is thus to maintain given relationships and not reduction of price fluctuations.
Parity may be conceived in a number of ways :

Parity between prices of agricultural commodities and non-agricultural

commodities.

Parity between prices of individual agricultural commodities and general

agricultural prices.

Parity between prices received for the farm products and prices paid for farm
inputs.

Parity between prices received for the farm products and prices paid for the farm

and family expenditure taken together .

The terms of trade between agricultural and non-agricultural sector assume great
significance, because the sectoral relationship of prices have a bearing on production.
Inter crop price ratios have an important influence on the production programme of the
farmers and therefore need to be kept in mind while fixing the prices of various
commodities under managed price system.

58

Agricultural Inputs Marketing

A timely and adequate supply at fair prices of farm inputs -seeds, fertilizers,
micronutrients, organic inputs, plant protection chemicals and agricultural implements are
of great importance in the production of output. The importance of purchased farm inputs
has significantly increased in recent .past with the technological break through in Indian
agriculture. The timely supply of modern farm inputs to the farmers of all categories at
reasonable prices depends on the existence of an efficient marketing system for them.
The importance of an efficient marketing system for inputs may be judged by the
following.
1. The effect of change in production methods can be realized only if the farm inputs
reach the farmers in time at the least cost.
2. The use of modern inputs by farmers largely depends upon the spread of
information about them.
3. Dynamic and efficient channels for marketing of farm inputs are essential for the
popularization of knowledge about modern inputs among the farmers.
Manufacturing and supplying industries of farm inputs provide employment
opportunities in manufacturing, selling and handling.

1. Fertilizer Marketing
a. Chemical fertilizers
Among all the inputs purchased by farmer, fertilizer is the most important input used
to accelerate agricultural production. The demand for chemical fertilizer has increased
with the evolution of new hybrid and dwarf variety seeds, which are more responsive to
chemical fertilizers. The consumption of nitrogenous and phosphoric fertilizer is 13.6
million tonnes (MT).The production is not enough to meet the demand for fertilizers. We
produce only N and P fertilizers and entire K fertilizers are imported. We import about
3.15 MT of NPK fertilizers to meet our demand. The subsidy for fertilizers is increasing
year after year since 1995-96 and touching Rs.15,000 crores.
The consumption in appropriate mix (ratio) of the three primary plant nutrients
-Nitrogen (N) Phosphate (P) and Potash (K) is essential for increasing crop yields. The
ideal NPK ratio aggregated for the country as a whole is 4 : 2 : 1, but the current all India
NPK consumption ratios do not confirm to ideal norms. Another important effect of
decontrol has been distortion in the nutrient consumption ratio and imbalanced fertilizer

59

use. In the pre-decontrol year of 1991-92, NPK consumption ratio was 5.9 : 2.4 : 1 which
was very near to ideal ratio and it widened to 10 : 2.9 : 1 in 1996-97.
The retail prices of fertilizers affect the consumption of fertilizers. The nitrogenous
fertilizers are relatively cheaper compared to P & K fertilizers after decontrol of fertilizer
prices in August 1992. To ensure the balanced application of NPK fertilizers recently the
Government of India increased the subsidy for P&K fertilizers.
The increase of subsidy to fertilizer will add to the subsidy account of budget. The
subsidy for DAP fertilizer is Rs.4600 per tonne for indigenously produced and Rs.3,200
imported fertilizer. The subsidy for Muriate of potash is Rs. 3,250 per tonne and that of
single super phosphate is Rs. 900 per tonne . The subsidy for complex fertilizers range
from Rs. 2,588 4,282 per tonne depending upon the NPK nutrient content. The
administered price of Urea is Rs. 4,000 per tonne.
In general, the dealer's commission accounts for 30 to 35%, transportation cost
20%, handling cost 10%, storage cost 10% and miscellaneous items account for
remaining 25-30% of the gross marketing margin. The marketing cost for fertilizer has
been estimated as 10% of the farm price.
b. Secondary and micro-nutrients
Fertilizer use efficiency for major nutrients namely N, P and K are also affected
due to the micronutrient deficiency in the soil. Since mid 1960s, deficiency systems of
secondary and micronutrients have been observed particularly for Sulphur, Zinc and Iron.
Sporadic deficiency of other nutrients either in specific areas or in specific crops has also
been noted. In view of higher intensity of cultivation in future, greater micronutrient
deficiencies may be noted in most of the states. Application of micronutrients will
become very essential to obtain response to major nutrients and achieve our food
production goals.
Inconsistency in production, quality, price and availability of micronutrients has
discouraged farmers to extensively use these inputs. Government of India has taken
initiatives to promote the use of micro nutrient fertilizers. However, the production of
micronutrient fertilizers has been left with the small-scale industry. The farmers are
finding it difficult to get good quality micronutrient fertilizers at the right time and the
right place

60

C. Bio-fertilizers
There is growing concern about the adverse effect of indiscriminate use of
fertilizers on soil productivity and environmental quality. Bio-fertilizers, which are cost
effective, eco-friendly, and renewable source of plant nutrients can be used to supplement
or partly replace chemical fertilizers. It is estimated that bio-fertilizers can generally
provide 20-25 per cent of the nitrogen requirements of crops. However, their performance
is highly unpredictable with an increase in crop use varying from 10 to 65 per cent. The
main bio-fertilizers produced in India are Rhizobium (23.3%), Azospirillum (12.4%),
Azatobacter (26.4%) and Phosphates Solubilizer (37.4%). At present, there are 62 Biofertilizer units with a production capacity of 8115 tonnes. However, the total production
was 5177 tons only.
The use of bio-fertilizers is constrained by a number of factors and is limited to
certain crops and locations. The main constraints are short shelf-life (3-6 months), poor
storage, transportation and distribution system, lack of awareness and in effective
extension programmes.

2. Marketing of Seeds
Seed is the basic and crucial input for attaining sustained growth in agricultural
production. Seed is the carrier of new technology for crop production, propagation and
multiplication. Distribution of assured quality seeds are fundamental to attain higher crop
yields. Policy initiatives taken by Government of India during 1960's and 1970's for
generating quality seed production and distribution of new improved plant varieties is the
main reason for country's current self sufficiency in food grains. Indian seed industry has
shown impressive growth and should continue to provide further potential for growth in
agricultural production. The role of seed industry is not only to produce adequate quantity
of seeds of good quality but also to achieve diversity in variety distribution. Towards
achieving this objective the principal players are the two national level organizations
-National Seeds Corporation (NSC) and State Farm Corporation of India (SFCI) - State
Seeds Corporations and private seed organizations. There are 23 State Seed Testing
Laboratories to ensure/check the quality of seeds.
National Seeds Project -World Bank assisted Project -provides assistance to NSC,
SFCI, State Seed Corporation and State Seed Certification Agencies for their
restructuring. The breeder seed production has increased from 23.64 thousand quintals in
1985-86 to 46.13 in 1997-98. The production of foundation seeds have increased from
3.35 lakh quintals to 6.70 in 1998-99. The production of certified / quality seed, on the

61

other hand, has increased to 83.00 lakh quintals in 1998-99 from 55.01 lakh quintals in
1985-86
About 80 per cent of area under rice and 90 per cent of wheat are covered under
high yielding varieties. There has been progress under major millets also over the 90s ,
which has increased from about 50 per cent of total cultivated area to about 64 per cent.
Hybrid seeds, which have high yield potential, are available for jowar, bajra, maize,
cotton, sunflower, castor and cotton.
The Seed Act, 1966 provides for a system of certification of seeds to assure the
farmer about the quality of seed. However, seed certification is voluntary and not
mandatory except, for MRTP /FERA and Foreign Collaboration Companies. There are
also a number of problems in seed certification and lack of standard procedures, which
have made seed certification cumbersome and difficult. As such, the availability of
certified seed is limited and much less than the demand. Uncertified quality seed branded
as "Truthfully Labeled" (TL) seed is sold to the farmers by the private seed distributors.
Import and export of seeds
The New Policy on Seed Development (1988) provides for liberal import of seed
and planting materials. India's imports of vegetable and ornamental seeds, coarse cereals,
oil seeds and planting material has been increasing in recent years. About 460 tonnes of
seed was imported in 1994-95 as compared to 83.5 tonnes in 1990-91. India with varying
agro-climatic zones is very suitable for producing a large number of varieties of hybrid
seeds for export purpose. Due to recent liberalization of various policies and rapid growth
of private seed industry, export of seeds particularly of cereals, vegetables, flowers, forest
plants, has increased in last few years.
Role of public and private sector industries
The public sector, which accounts for 60-65 per cent of total turnover of seed
industry, is mostly engaged in production and distribution and distribution of seeds of
cereals (mainly wheat and rice), pulses and oil seed crops. The private sector, on the other
hand, is mainly involved in the business of hybrid seeds of maize, jowar, bajra and cotton
and also seeds of high value crops like vegetable and ornamental plants. The private
industry is also playing a leading role in the development of planting material through
biotechnology and tissue culture.

62

3. Marketing of Pesticides
Diseases and pests attack crop plants and decrease yields, and are some times
responsible for total crop failure. Weeds compete with crop plants, for nutrients. Plant
protection 'chemicals are used to either prevent their attack or control them. Unlike seed,
this input has to be used at different times of growth. Plant protection measures begin
with soil treatment before sowing, and continue up to the disposal of produce. The use of
chemicals requires a high level of technical knowledge in the selection of chemical, the
method of its use, the care to be taken in handling it and an appropriate dosage and
frequency of treatment.
Production and Consumption of Pesticides
Private sectors as well as public sector companies or corporations manufacture
plant protection chemicals in India. Nearly 44 technical grade pesticides, having 110
formulations, are manufactured in India. The production of pesticides in 1990-91 was
60,000 tonnes against the installed capacity of around 1.07 lakh tonnes. There are 25
large units manufacturing pesticides and formulations apart from 450 small ones. The
actual production of pesticides is less than the established capacity, resulting in import of
pesticides. Pesticides, which include insecticides, herbicide, fungicides, rodenticides and
fumigants, are important input to prevent or control such losses.
Initially, pesticide requirements in India were met through imports. However, the
pesticide industry grew rapidly between 1977 and 1996. Since then there has been a
consistent growth in the domestic pesticide production. At present there are 125
production units with an installed capacity of about 1, 16,000 tons of technical grade
pesticides per annum in addition there are about 500 small-scale units engaged in the
manufacture of pesticide formulations. The highest pesticide consuming state is Andhra
Pradhesh followed by Punjab, Karnataka and Tamil Nadu. Among the different crops
cotton and rice are the major pesticide consuming crops.
Integrated Pest Management
In the past, chemical pesticides have been effective, dependable and economical.
However, their indiscriminate use has resulted in several problems such as development
of resistance in pests, toxic residues in food, water, air and soil and disruption of eco
system and environment. In order to tackle pest problems and minimize crop losses
Government of India has recognized the need to promote Integrated Pesticide
Management (IPM) approach. IPM is a broad ecological approach of pest control
utilizing intelligently all techniques and methods viz. cultural, mechanical, biological and

63

chemical in as compatible manner as possible to maintain the pest population below

Economic Threshold Level (ETL). The results obtained from IPM demonstration and the
experience of the farmers have been very encouraging by implementing IPM. Some
states like Tamil Nadu, and Punjab have already brought down their pesticides
consumption by about 50 percent.

Bio-control and bio-pesticides

The term bio-pesticides refer to all biological materials, which can be formulated
for use as pesticides for control of pests. Bio-pesticides are gaining importance for
control of pests not only in agriculture but also in horticulture, forestry and public health
programmes. Concerted efforts are being made to reduce the use of pesticides to provide
pesticide residue free food by promoting use of bio-pesticides and bio-control agents.

4. Marketing of Agricultural Implements and Farm Machinery

The use of draught animal energy for crop production measured in terms of
animal pair hour used per hectare per year has declined from 159 (1971-72) to 90
(2001-02). Farm modern implements (Machines) are used to perform certain operations
with speed and accuracy -which may not be possible with human and bullock labour. The
machines used for farming are tractors, pump sets, sprayers/dusters and threshers. The
demand for farm machines is derived demand. Machines are manufactured mostly in the
private corporate sector. The manufacturers market their products through their
authorized dealer and sub dealers. Most of the sales depots are located in cities or towns.
The Agro-Industries corporations have entered late in the market for the sales of farm
machines and their spare parts.
A sharp rise in farm power availability from mechanical sources relative to animal
sources This being especially pronounced from 1971 when the Green Revolution was
beginning to take roots. Thus while in 1971 the contribution of mechanical sources to
total farm power availability stood at 21 percent. This share has now crossed 70 percent.
Higher mechanization levels, in turn, have also prompted a near three-fold increase in
aggregate farm power capacity since the early 1970s to 1,43,145 MW in 1996. The
growth of tractor drawn implements is more perceptible than the animal operated
implements.

64

International Trade
International trade is the exchange of goods and services across international
boundaries or territories. As far as individual country is concerned, external trade is done
in the form of either imports and exports of goods and services.
The fundamental basis of international trade lies in the fact that countries are
endowed by nature with different elements of productive power. In otherwords, factor
endowments are unevenly distributed among the countries of the world. This is due to
geographic facts, physical features, a nd climatic differences. Some countries are rich in
some minerals eg. Africa in gold and diamonds, Arab countries in oil resources. Thus
international trade is inevitable when there are marked differences in the countries
regarding materials, natural vegetation, climate, soils and other physical and geographical
conditions.

Classical theory of international trade

1. The theory of absolute advantage
Adam Smith argued that a country could certainly gain by trading with other
nations. For instance, if it takes 10 units of labour to produce one unit of good X in
country A, but 20 units of labour to produce the same good in country B, and if it takes
10 units of labour to produce one unit of good Y in country B and 20 units of labour to
produce the same good in country A, then both the countries will gain by trading. After,
the opening of trade, country A will specialize in the production of good X, while country
B will specialize in the production of Y.
2. The theory of comparative advantage
Ricardo argued that any two countries can very will gain by trading even if one of
the countries is having an absolute advantage in both the goods over another country,
provided the extent of absolute advantage is different in the two commodities in question
i.e. comparative advantage is greater in respect of one good than in that of the other. Eg.,
In country A
In country B

: Marginal cost of producing wheat is Rs.70/qtl

Marginal cost or producing cotton is Rs. 140/qtl
: Marginal cost of producing wheat is Rs.50/qtl
Marginal cost of producing cotton is Rs.70/qtl

65

In this case, country B can produce both wheat and cotton cheaper than country A, But
the comparative advantage is greater if it produces cotton. i. e
Country A
1 qtl of wheat
= 0.5 qtl of cotton
Country B
1 qtl of wheat
= 0.71 qtl of cotton
Therefore, the country B can specialize in cotton and the country A can specialize in
wheat.
Autarky
A state of isolated or closed economy, that is, an economy having no international
economic transactions. This is an economy that limits trade with outside world, or an
ecosystem not affected by influences from outside, and relies entirely on its own
resources.
Free trade
This is a market model, wherein trade of goods and services between countries
flows unhindered by government imposed artificial costs. A policy under which a country
does not restrict its imports by quantitative restrictions, and import duties.
Trade policy
It covers the entire range of policies relating to the external sector of an economy,
including those relating to invisible trade, capital and investment flows, trade agreements,
international agreements and commitments and so on.
Trade policy instruments
1. Tariffs (duty)

A tariff / duty is a tax levied on imports and less often on exports as they
cross the borders of other countries.
Types of Tariffs:
a. Advalorem duty
Percentage of value of an imported good.
b. Specific duty

Flat amount charged for each physical unit of a particular

imported good.

c. Compound duty

A combination of the above two.

66

2. Quotas

A quota exerts a restrictive influence on the volume of imports. It sets a limit on the
total physical quantity or total value of a particular import that may enter the country
during a given period of time.
Types of Quotas:
a. Absolute quota Set outright limits on the amounts of different commodities that
can be imported. In its extreme form an absolute quota may
completely prohibit the importation of a particular product in
which case it can be termed an embargo.
b. Tariff quota

Limits are imposed not on the total quantity of an imported

product but on the amount that may come in free of duty or at a
specially reduced duty rate. Imports in excess of this amount are
permitted but are subject to the regular duty or even a higher duty.

3. Subsidies

Subsidies are intended to make it possible for high cost domestic producers to
compete in the world market with more efficient foreign producers. Such subsidies take
many different forms.
In its simplest form a subsidy consists of a direct payment by the Government to
the exporter after the later has completed his sale. The payments may be based on the
number of units sold.
Another form of subsidization is the support that Government normally grant to
their merchant marines (shipping lines)
Lastly, export subsidies may consist of tax concessions to exporters. In several
countries exporters are either exempted from or reimbursed for payment of various
business taxes.
Terms of Trade
The price of imports in terms of price of exports (or) the value of exports in terms
of value of imports.
Balance of Trade
The difference between the value of commodity exported and the value of
commodity imported is known as balance of trade. Balance of trade refers only to
merchandise balance or balance on visible transactions alone.

67

Balance of Payments
The balance of payments of a country refers to the balance between the payments
that are owed to the outside world and that are owned by the country. It is a recording of
the value of the transaction across borders and comparison of in country transaction with
outgoings. The difference of inflows and outflows shows the extent of balance of
payments and the capacity of drain on foreign exchange of a country.
The balance of payments refers to sum of both the balance of visible and invisible
transactions (transportation charges, shipping freights, passenger fares, harbour and canal
dues, commercial services, financial services and services connected with the tourist
traffic and payments of interest on external debt).
Exchange Rate
The exchange rate between two currencies specifies how much one currency is
worth in terms of the other currency.
Forex Market / Foreign exchange rate market
Forex market is an international market where various currency exchange
transactions take place; this is in the shape of simultaneously buying one currency and
selling another currency. The mechanisms of the market place are very similar to that of
other markets such as stock market. The purpose is to buy low and sell high to maximize
profits.

68

Agricultural Exports and Imports

Agricultural Exports
In 1998-99, India emerged as a major exporter of basmati and non-basmati rice.
The international trade in agricultural products is increasingly being dominated by
concerns of quality to safeguard human health. Importing countries are setting higher
standards of quality for food products. It is therefore very important that agro foodprocessing industry improves its functioning and pays attention to hygiene and
processors/ manufacturers are made aware of the high international standards for quality.
There is also a need to harmonies domestic standards with international standards, lay
down standards for products where there are none but are necessary, and revise the
current standards to meet the changing requirements. Towards this end revision of
standards for spices and basmati rice is underway. Keeping the potential of this sector in
view, there is considerable scope for increasing the share of agricultural and food
products in the total export basket. The Government is giving special attention to this area
by providing thrust to agricultural exports through enhanced public investments and by
building up a conducive policy environment. The growth of exports in India and the
world is furnished in Table I.
Table-I
Trends in Indias Share in World Trade (Exports)
(Value in US $ Million)
Commodity
1970
1999
Group
World
India
%
World
India
%
Rice
925
6
0.6
8105
1632
20.1
Sugar &
2700
26
1.0
15194
12
0.1
Preparation
Vegetables
1471
17
1.2
71799
689
1.0
&
Preparation
Meat
3584
4
0.1
43535
200
0.5
Fish
47070
1119
2.4
Coffee , Tea
5437
280
5.1
31135
1315
4.2
Spices
Tobacco
1713
43
2.5
22814
149
2.4
Total
21680
379
1.8
286731
5120
1.8

69

Agri-exports can be divided into three broad categories, i.e. export of a) raw
products b) semi raw products c) processed and ready to eat products. Raw products
exported are essentially of low value high volume nature, while semi processed products
are of intermediate value and limited volume and processed ready to-eat products are of
high value but low volume nature. The major agri-exports of India are cereals (mostly
rice Basmati and non-Basmati), spices and cashew, oilcake/ meals, tobacco, tea, coffee
and marine products. Value of agri-exports of the country has been ranging between 15 to
20 per cent (Table II).
Table-II
Trend and shares of Agricultural products in exports of India
(Value in Rs. Crores )

70

Year

Total Exports

Agricultural and
Share of AAP in
Allied products
total exports(%)
1960-61
642
284
44.20
1970-71
1535
487
31.72
1980-81
6711
2057
30.65
1990-91
32553
6317
19.41
2001-02
209019
29312
14.02
A number of agricultural commodities are exported from India. The commodities
exported from India fall broadly in three categories.
1. Traditional export items These products are cashew nuts/ shelled: castor oil;
coffee; raw cotton, cotton waste; fruits, spices, sugar and molasses; tea and
tobacco unmanufactured.
2. Non-Traditional items but uncertain These items are raw jute; raw wool; gums,
resins and lac, essential vegetable oils; and non-essential vegetable oils (excluding
castor oil).
3. Non-Traditional items with good prospects These items are floriculture
products; HPS groundnut; oil meals; meat and meat preparation; processed fruits
and juices, processed vegetables; sesame and niger seeds; shellac; wheat and rice.
The growth in the export of non-traditional new items has been at a rate higher than
that of traditional items (Table III). Tea, coffee, tobacco, cashew kernels and spices are
the traditional export items. During 1990-91, they together accounted for 31.1 percent of
the total AAP exports but their share deceased to 23.10 percent in 2001-02. As against
this, the exports of non-traditional items like marine products, basmati rice, fruits,
vegetables, oil meals and processed foods have been increasing in the export basket of
the country. Among the non-traditional items, the increase has been conspicuous in rice
and fish and fish preparations. Rice accounted for 7.3 percent of total exports of AAP in
1990-91 which further increased to 10.8 percent in 2001-02. Similarly the share of fish
and fish preparations increased from 15 to 20 percent during this period. The relative
importance of various commodities in total agricultural and allied products exports has
substantially changed during the last four decades.
During the nineties, agricultural exports have received special attention since it is
in this area that there exists great potential for raising farm incomes, tackling
unemployment problem and earning foreign exchange. The impetus for accelerated
growth in agricultural exports envisaged through increased infrastructure support and by
building up conducive policy environment. Some of the measures undertaken in this
connection include, market determined exchange rate policy, lowering import duties on
capital goods, particularly machinery necessary for food processing, easier availability of

71

credit for exports, removal of restrictions on export of agricultural products and several
concessions to export oriented units.

Table-III
Exports of Agricultural and Allied Products from India

(Value in Rs. Crore)

Commodities
1960-61
1970-71 1980-81 1990-91
2001-02
Tea and Coffee
131
173
640
1332
2814
Oil Cakes/meals
14
55
125
609
2263
Tobacco
16
33
141
263
808
Cashew kernels
19
57
140
447
1652
Spices
17
39
11
239
1497
Sugar and Molasses
30
29
40
38
1782
Raw Cotton
12
14
165
846
43
Rice
5
224
462
3174
Fish & Fish Preparation 5
31
217
960
5897
Meat & meat
1
3
56
140
1193
preparation
Fruits, Vegetables &
6
12
80
216
1560
Pulses
Processed Foods
1
4
36
213
1236
Others
32
31
182
952
5393
Total Agricultural and 284
487
2057
6317
29312
Allied products
Indias agri-exports face certain constraints that arise from conflicting domestic
policies relating to production, storage, distribution, food security, pricing concerns etc.
Unwillingness to decide on basic minimum quantities for export makes Indian supply
sources unreliable. Higher domestic prices in comparison to international prices of
products of bulk exports like sugar, wheat, rice etc make our exports commercially less
competitive. Market intelligence and creating awareness in international market about
quality of products need to be strengthened to boost agricultural exports.
Agricultural Imports
Agri-imports constitute only a small proportion of the countrys total imports
(Table IV). During the period 1996-97 to 1999-2000, agri-imports have been in the range
of 4 to 7 per cent of the total imports of the country. In recent years, edible oil has
become the single largest agri-import accounting for more than 50 per cent of the value of
total agri-imports. In 1999-2000, it accounted for as high as 70 per cent of total agriimports. Another item, which has been accounting for around 10 per cent of total agriimports is raw cashew nut. Each of the other agricultural and allied products imported
into the country cereals, pulses, spices, sugar, milk and milk product, chicken, meat etc.
72

account for very small proportion of total agri import, except in some climatically
abnormal years warranting relatively larger import of a particular commodity cereals
(mostly wheat) in 1997-98, pulses in 1996-97 and 1997-98.
The general policy is that imports duties should be low for those sensitive
essential products where there is a large domestic shortfall in production. Pulses are a
typical example, where there is zero import duty. High tariff walls we raised this year for
many agricultural and allied products, such as rice, wheat, millets, sugar, milk powder,
apple, chicken, edible oils etc to ally the fears of large scale dumping of such products in
Indian market in view of liberalization of import policy in respect of many such products.

Table-IV
Trend and shares of food products in imports of India(Value in Rs. Crores )

73

Year

Total Imports

Food Articles

Share of FA in total
imports (%)
1960-61
1122
186
16.6
1970-71
1634
252
15.4
1980-81
12549
809
6.4
1990-91
43193
508
2.2
2001-02
245199
562
0.02
Projection of exports and imports of agricultural commodities and processed
products during the Tenth Five Year Plan are shown in Table V. The major thrust of
exports will be on rice, wheat, tea / coffee, marine products, sugar and processed foods.
As regards imports, Indias imports of pulses, raw cotton and edible oils will increases
considerably by the end of Tenth Five Year Plan in 2006-07

Table-V
India: Projections of Exports & imports during Tenth Plan(US $ Million)
Commodity
Exports
Imports
2001-02
2006-07
2001-02
2006-07
619
1085
*
*
Rice
Wheat
289
384
*
*
Other Cereals
74
99
7
10
Pulses
78
90
641
1240
Jute
2
2
22
23
Cotton
6
7
487
1010
Tea &Coffee
568
869
15
36
Rubber
15
20
172
261
Other crops
462
613
49
75
Livestock
344
632
20
39
Forestry & Logging
266
290
30
58
Fish
1357
2075
9
17
Sugar
515
863
21
44
Edible Oils
180
206
1586
4835
Other Food & Beverages
1585
2657
472
1151
Total
6360
9892
3531
8799
Exports and Imports Procedures
To become an exporter, whether proprietorship, partnership, or company - the
head of the concern should apply for allotment of exporters code in the prescribed CNX
form in duplicate (available in all branches of the RBI). Exporter should enclose a
certificate from his bankers in prescribed form and two declarations and submit them
along with CNX form. After processing of application exporter code is allotted with in 3
days. After RBI code is allotted, the concern should apply for allotment of importer

74

exporter code in the office of Joint Director General (Foreign Trade) in a prescribed
application form. Along with the form Rs.1000 should be paid by challan counterfoil
of the challan should be enclosed with a application. After processing the application the
Import Export code (IMPEX code) is allotted. IMPEX code and RBI code are
necessary and it should be mentioned on shipping documents of all consignments both
for import transaction and export transaction. The consignments at customs (or) at ports
are identified with the help of this code numbers. As per Foreign Exchange Regulation
Act (FERA) an exporter as to realize the export proceeds with in 180 days. If it is not
realize, exporter (with RBI code) is reminded of his duties, failing which he has to
explain the reason for not having realized the proceeds to the satisfaction of competent
authorities. For trade enquires, one should verify the import - export policy of the
Government to know whether the particular commodity is allowed for export/import or
not. If commodity is allowed for export as per export import policy, one should gain full
knowledge about his product.

75

RECENT POLICIES ON TRADE

Export-Import Policy, 1992-97
The Government of India announced a new five year export-import policy
effective from April 1, 1992 which gave further push to liberalization of imports and
intended to give significant boost to exports. Under this policy, the international trade
was made free subject to a negative list of imports and exports. But as far as farm
products and related goods are concerned, most of them remained a part of the negative
list, as per the following details:
Negative List of Exports

(i) Permitted Subject to Licensing Coconut, copra, seeds and planting materials, cotton seed, vegetable oils,
groundnut cakes, rice bran, milk, cattle, camels, chemical fertilizers.
(ii) Permitted through Canalising Agency
Onion (NAFED), Niger seed (NAFED/TRIFED), Powdered Milk (NDDB), Ghee
(NDDB).
(iii) Permitted without a Licence but subject to terms and conditions Basmati rice, nonbasmati rice, wheat, barley, maize, bajra, jowar, ragi, HPS groundnut, raw cotton (Bengal
desi, Assam comilla, staple cotton, yellow picking), sesame seed, sugar, gram and gram
flour, wheat flour, deoiled groundnut cake, deoiled rice bran, VFC tobacco, soyabean
extractions, cotton yarn, black pepper etc.
Negative List of Imports

(i) Canalised Items

-All fertilizers (MMTC), edible oils (STC, HVOC), seeds of oilseed crops (STC,
HVOC), Cereals (FCI).
(ii) Restricted Items
Livestock, plants, seeds and other materials (licence from the Department of
Agriculture)
The import of pulses, raw cashewnut, seeds of vegetables and flowers, plants,
tubers and bulbs of flowers etc were placed in the negative list.The philosophy
underlying these massive trade policy reforms include the following:
(i) Trade both exports and imports can flourish in a free regime
(ii) Trade policy should go far beyond balancing of imports and exports and should lead
to better technology, greater investment and more efficient production at home.

76

(iii) Liberalization and removal of licensing, quantitative restrictions and other

discretionary controls on maters relating to exports and imports are essential to trade
policy reforms. This meant fewer governmental restrictions, greater freedom to trade and
lesser administrative controls.The process of pruning the negative list and decanalization
has continued in recent years.

Export-Import Policy, 1997-2002

Objectives:

To accelerate the economy to derive maximum benefits from expanding global

market opportunities.

To simulate sustained economic growth by providing access to essential raw

materials, intermediaries, components, consumables and capital goods required
for augmenting production.

To provide consumers with good quality products at reasonable prices.

To enhance the technological strength and efficiency of agriculture, industry and

services, there by improving the competitiveness while generating employment
opportunities and encouraging the internationally accepted standards.

To conceive Export Processing Zones (EPZs) free from fiscal barriers and
thereby providing an ideal setting for production at low cost, so that exporting
units could compete in the International Markets.

Export-Import (Exim) Policy, 2002-07

Removal of all quantitative restrictions and decanalization of exports (except few

sensitive items) of farm products.

Scheme of Special Economic Zones (SEZ) strengthened

Major thrust to promote agricultural exports by setting up of Agri Export Zones

and by removing export restrictions on designated items (agro and agro-based
products)

Transport subsidy provided for export of fruits, vegetables, floriculture, poultry

and dairy products.

Simplification of procedures of further reduce transaction costs

Widening of the scope of Market Access Initiative Scheme to include setting up of

Business Centres in Indian Missions abroad for focused market promotion of
exports.

Dereservation from small scale industry provisions of over 50 items including

agricultural implements.
77

Export Promotion Councils

The basic objective of Export Promotion Councils is to promote and develop the
exports of the country. Each Council is responsible for the promotion of a particular
group of products, projects and services.
The main role of the EPCs is to project India's image abroad as a reliable
supplier of high quality goods and services. In particular, the EPCs shall encourage and
monitor the observance of international standards and specifications by exporters. The
EPCs shall keep abreast of the trends and opportunities in international markets for
goods and services and assist their members in taking advantage of such opportunities in
order to expand and diversify exports.
The major functions of the EPCs are
1. To provide commercially useful information and assistance to their members in
developing and increasing their exports;
2. To offer professional advice to their members in areas such as technology
upgradation, quality and design improvement, standards and specifications,
product development, innovation, etc.;
3. To organise visits of delegations of its members abroad to explore overseas
market opportunities.
4. To organise participation in trade fairs, exhibitions and buyerseller meets in India and abroad;
5. To promote interaction between the exporting community and the Government
both at the Central and State levels; and
6. To build a statistical base and provide data on the exports and imports of the
country, exports and imports of their members, as well as other relevant
international trade data.
Agricultural and Processed Food Products Export Development Authority (APEDA)
The Agricultural and Processed Food Products Export Development Authority
(APEDA) was established by the Government of India under the Ministry of Commerce
on February 13, 1986 under the Agricultural and processed Food Products Export
Authority Act, 1985. The main responsibility of APEDA is the export promotion of fruits
and vegetable products, meat and meat products, poultry products, dairy products,
confectionery, biscuits and bakery products, honey, jaggery, sugar and coca products,
alcoholic and non-alcoholic beverages, pickles, chutneys, papads, cereals (non-basmati
rice) and other processed foods.

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The main objectives of establishing APEDA are:

(i)
To maximize foreign exchange earnings through increased agro-exports for
providing higher incomes to the farmers through higher unit value realization;
(ii)
To create employment opportunities in rural areas by encouraging value added
exports of farm products; and
(iii)
To implement schemes for providing financial assistance to improve postharvest facilities to boost their exports.
The APEDA has brought qualitative change in the agricultural marketing system
and environment and, therefore, has increased the credence of the agri-business in the
products. The examples of these may be export of grapes and mangoes from Maharashtra
and Karnataka; strawberry and mushrooms from Punjab and Haryana; litchi from Andhra
Pradesh, Uttar Pradesh and Bihar; and cutflowers from Delhi, Haryana and Karnataka.
The efforts made by APEDA had brought significant impact on the growth of exports of
its scheduled products.
The APEDA has build links between Indian producers and the global markets.
APEDA has undertaken following development programmes to achieve the objectives for
which it has been set-up in the country:
(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
(viii)
(ix)

Development of databases on products, markets and services;

Publicity and information dissemination;
Inviting official and business delegations from abroad and organization of
product promotions and visit of official and trade delegations abroad
Organization of seminars, workshops and awareness programmes on exports
as well as on latest farming practices;
Participation in International Trade Fairs in India and abroad and organization
of buyer-seller meets and other business interactions;
Information dissemination through APEDAs newsletter, feedback series and
library;
Providing recommendatory, advisory and other support services to trade and
industry;
Problem solving in government agencies and organisations, RBI, and customs
related to import-export procedures;
Offer of financial assistance under various schemes, which seek to promote
and develop agro-exports.

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The activities for financial assistance from APEDA include;

(a) Strengthening of market intelligence and data base through studies and
surveys
(b) Quality up-gradation
(c) Development of Infrastructural facilities
(d) Research & Development
(e) Development of packing quality
(f) Human resource development, and
(g) Up-gradation of meat processing facilities.

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General Agreement on Trade and Tariffs

(GATT)
and
World Trade Organisation (WTO)
Background
Globalization is a process of growing economic linkages between countries
through a reduction on restrictions on trade and capital flows etc., Experience of
Inter-World War chaotic practices prompted leading economic powers of the world to
search for a rule-based and orderly world trade regime supported by:

a reconstruction of war torn economies,

a solution of the developmental problems, and

a healthy international financial system capable of tackling exchange rate and

balance of payments problems.

Accordingly, they planned to create the following three international institutions for the
attainment of these objectives.
The fist institution, namely, the International Bank for Reconstruction and
Development (later known as the World Bank) was created for financing (i)
reconstruction of the war-devastated economies (particularly of Western Europe), and (ii)
economic development of the backward countries.
The second institution, the International Monetary Fund, was created for
supporting a regime of stable exchange rates and for overcoming short term balance of
payments difficulties faced by member countries.
The third institution (which they failed to create) was the International Trade
Organization (ITO). Its objective was to create a new world economic order
incorporating a system of free trade with minimum or zero tariffs and zero non-tariff
barriers.

General Agreement on Trade and Tariffs (GATT)

The General Agreement on Trade and Tariff (GATT) was a multinational treaty to
liberalize world trade and it took effect on 1st January 1948. GATT established a code of
conduct for international trade, based on the principle that the trade should be conducted

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without discrimination, tariffs should be reduced through multilateral negotiations and

member countries should consult each other to overcome trade problems.
Objectives
The three basic objectives of the GATT were a) to provide a frame work for the
conduct of trade relations b) to promote the progressive elimination of trade barriers and
c) to provide a set of rules (codes of conduct) that would inhibit countries from taking
unilateral actions.
Principles
1. Non-Discrimination
The basic principle of GATT is non-discrimination. Contracting parties accept the
so called most-favoured nations (MFN) clause. It rules out any preferential treatment
among nations as for as trade policy is concerned ,except vis--vis those not members of
GATT. That is, any country gives preferential tariff access to any other country then that
concession must be extended immediately to all other countries so that all the contracting
parties benefit to the same extent. The MFN clause has played an important part in
encouraging countries to negotiate on trade liberalization.
2. Reciprocity
The reciprocity obligation requires that a country receiving a concession from
another country should offer an equivalent concession in turn.
3. Transparency
Article XI of the GATT forbids the use of direct controls on trade particularly
quantitative restrictions, except under a few designated circumstances (such as a balance
of payments crisis, allowed under Article XII). The rationale for banning quotas etc. is
that a quantitative restriction is less transparent instrument for reducing imports than a
tariff.
4. Consultation
It was expected that trade disputes among nations would be solved through
mutual consultations within the GATT framework.

World Trade Organisation (WTO)

WTO is an international body to supervise and encourage international trade. The
Uruguay Round of trade talks concluded in 1994 resulted in setting up of the World Trade
Organisation (WTO) to take over the functioning of GATT for encouraging multilateral
trade in goods and services. The WTO began functioning on 1st January, 1995. The
Agreement on Agriculture (AOA) under WTO requires clear understanding.

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Agreement on Agriculture (AoA) under WTO

The provisions under AoA can be understood to consist of five broad groups:
1. Market Access Commitment
2. Reduction Commitment for Aggregate Measure of Support (AMS)
3. Reduction Commitment for Export Subsidy
4. Sanitary and Phyto-Sanitary Measures (SPS)
5. Trade Related Intellectual Property Rights (TRIPS)
(i) Market Access
The provisions under market access commitment include the following:
a. Tariffication of all non-tariff barriers (like converting quantitative restrictions
to import duty)
b. Reduction of all tariffs in a time bound framework as follows:
Country
Period
Reduction (%)
Developed
6 years
36
Developing
10 years
24
c. If imports of foreign goods to the domestic market is less than three percent in
the base period (1986-88), it must be brought to three percent and to further
raise it to five percent in the implementation period.
d. If dumping is proved, the countries will have the freedom to increase the
import duty.
(ii) Aggregate Measures of Support (AMS)
The aggregate measures of support for a countrys agriculture is the sum of
product specific and non-product specific subsidies. If AMS in the base period (1986-88)
is more than the permissible limit, it should be reduced by the following amount during
the implementation period.
Country
Developed
Developing

Permissible AMS
(% of GDP)
5
10

Reduction commitment
if exceeds the limit (%)
20
13

(iii) Export Subsidies

The reduction commitment for export subsidies require that (a) the developed
countries would reduce it by 36 percent in six year; and (b) the developing countries
would reduce it by 24 percent in 10 years.
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(iv) Sanitary and Phyto-Sanitary Measures (SPS)

The SPS provisions of AoA require all exporters to employ international standard
relating to sanitary and phyto-sanitary conditions. In the case default, the importing
countries are allowed to prohibit imports from defaulting countries.
The Uruguay Round of trade talks had evolved a detailed discipline that a member
country may apply trade restrictive measure for the protection of human life or its health
and of plant or animal life or their health. These measures are contained in the Agreement
on the Application of Sanitary and Phyto-Sanirary (SPS) Measures. SPS measures are
applied to protect human life (health) or animal life (health) from risks arising from
(i)
The additive, contaminants, toxins or diseases causing organisms in foods,
beverages or food stuffs;
(ii)
The entry of or spread of pests, diseases, disease carrying organisms or
disease-causing organisms; and
(iii)
The diseases carried by animals, plants or their products.
(v) Trade Related Intellectual Property Rights (TRIPS)
Trade related intellectual property rights include copyrights, trade-marks,
geographic indications, industrial designs and patents. According to AoA, all the
countries are required to provide for arrangements for protection of plant varieties. The
developing countries were given a period of five years to evolve such arrangements.
The main features of the WTO Agreement on Agriculture (AoA), which are of
concern to India, are:
1. India has been maintaining quantitative restrictions (QRs) on import of 825
agricultural products as on 1st April, 1997. Under the provisions of the Agreement,
such QRs were to be eliminated. India had sought to remove them in three phases
within an overall time frame of six year. i.e. upto 31 st March, 2001. These QRs
have since been replaced with appropriate tariffs.
2. The agreement also imposed constraints on the level of domestic support provided
to the agricultural sector . In Indias case, it may have, in future, some
implications on minimum support prices given to farmers and on the subsidies
given on agricultural inputs. However, the agreement allows to provide domestic
support to the extent of 10% of the total value of agricultural produce. Our
support to the Indian farmers continues to be less than permissible limit.

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3. Disciplines on export subsidy do not affect us as India is not providing any export
subsidy on agricultural products.
4. The agreement allows unlimited support to activities such as:

a. Research, pests & diseases control, training, extension and advisory

services;

b. Public stock holding for food security purposes;

c. Domestic food aid.
Important terms related to external trade
(i) Quantitative Restrictions (QRs)
Quantitative restrictions are specific limits on the quantity or value of goods that
can be imported or exported during a specific time period. Quantitative Restrictions are
prohibited under GATT discipline. India has been maintaining QRs on imports of 825
agricultural products as on 1st April, 1997. These QRs have since been gradually removed
from almost all products in phases. The Quantitative restrictions can easily be replaced
with high import tariffs in case there is need to restrict import of these commodities for
ensuring welfare of the farmers. Therefore, ability to restrict import of any commodity is
not constrained in any manner by the provisions of GATT.
(ii) Dumping
Dumping is selling goods in a foreign country at a price which local producers
regard as unfairly low. It means selling of goods at a price with which producers in the
importing country cannot compete. Dumping is considered as unfair trade practice which
can have a distortive effect on international trade.
(iii) Anti-Dumping
Anti-Dumping is a measure to rectify the situation arising out of the dumping of
goods and its trade distortive effect. Anti-dumping duties are tariffs imposed in response
to alleged dumping. The purpose of anti-dumping duty is thus to rectify the trade
distrotive effect of dumping. Anti-dumping duty as an instrument of fair competition is
permitted by WTO. Anti-dumping is an instrument for ensuring fair trade and is not a
measure of protection per se for the domestic industry. It provides relief to the domestic
industry against the injury caused by dumping.

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(iv) Green Box Policies

Green box policies is the term used to describe domestic support policies that are
not subject to reduction commitments under the Agreement on Agriculture (AoA) under
WTO. These policies are assumed to affect trade minimally and include support such as
research, extension, foods security stocks, disaster payments and structural adjustment
programmes. The subsidies under Green Box are not only excluded from any reduction
commitments, but they are not subjected to any upper limit.
(v) Blue Box policies
Like the Green Box support, supports under Blue Box also exempted from any
reduction commitment as they are also decoupled and hence considered to be least or
minimally trade distorting. However, it differs from the Green Box support. The Blue box
support has an upper limit.
These subsidies include direct payment given to farmers in the form of deficiency
payment. In certain countries like United States, the difference in the governments
minimum support price and the market price is paid directly to the farmers. This is called
deficiency payment. Direct payment under production limiting programmes are also part
of the Blue Box policy. Here the farmers are paid so that they do not produce (by setting
aside land) beyond a certain level.
(vi) Amber Box Polices
These are those policies which are trade distorting and are covered under
reduction commitment in WTO. These subsidies directly influence the market prices,
they influence the farmers decision about the choice of crop to be produced and quantity
to be produced. Farmers enjoying relatively more of these kinds of subsidies can sell their
products at a lower price than other competitive farmers of the same products can.
Subsidies like input subsidies for fertilizers, electricity, subsidies in the form of lower
interest rates, market price support fall under Amber Box category.

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